You may be seeing a lot of stories in the news about tariffs and may be wondering how they might affect your budget. With changes to trade practices and policies taking place every few months it can be tough to discern whether or not the current increase in import tariffs is something you need to worry about. Read on to learn about tariffs, the ongoing trade war, and what this may mean for your wallet.
1. What Are Tariffs?
Traditionally, tariffs are taxes levied by government regulatory agencies that are placed on a group of imported goods. Governments cite many different reasons for imposing tariffs on another country but the goal is typically to make imports less convenient for domestic consumers since the tax essentially makes the imported version of the good more expensive. There are two types of tariffs: fixed fee tariffs (a fixed amount based on the type of item), and tariffs levied based on the item’s value (a fee determined by levying a percent of the value of the vehicle). Any country can place a tariff on goods from any country. These goods can include anything from retail items, like refrigerators, to raw materials, like aluminum or sugar.
2. Why Do Governments Impose Tariffs?
- To raise revenue
- To protect domestic industries
- To exert political leverage over another country
3. What Are The Fallout of Tariffs?
- Tariffs on imports can have the resulting effect as raising consumer prices
- They can make domestic industries less innovative and less efficient by reducing competition
4. Why Am I Hearing About Tariffs So Much Right Now?
China’s trading practices have been a topic of much public discourse since before the 2016 presidential election. The U.S. launched an investigation into Chinese trade policies in 2017, and then began imposing tariffs on billions of dollars of Chinese products in 2018. China then met this by raising tariffs on American imports as a retaliatory act. In December 2018, the heads of both China and the U.S. met to try to stop any further escalation and come to amenable terms, however, the talks did not end successfully, and America increased tariffs to 25% on $200b worth of Chinese imports in May of 2019.
5. What Does this Mean For Me?
It is difficult to get a sense of how current tariffs levied against specific Chinese goods are affecting American households for several reasons. Since nearly 6,000 products are affected by the most recent tariff increases, how you are affected by these tariffs depends on how much of these taxed products you buy, how often you are buying them and whether or not you (or anyone in your household) works in an industry directly affected by them.
6. What You Can Do
The most important thing you can do in response to the trade war is to understand your financial needs, goals and current health. How the tariffs affect you personally depends largely on your individual and household needs. By understanding your budget and your financial goals you can discern what items you will need to purchase this upcoming year and how those items may or may not face price hikes in the upcoming months.
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