We live in a global society, one defined by the trade of goods across borders — our strawberries are from Mexico, our phones from China and our gas is from Canada.
“It’s been established for, let’s say, 200 years, that trade is good,” said Ed Ray, economics professor and former president of Oregon State University.
Free trade has allowed us to purchase out-of-season produce and shiny new electronics at relatively reasonable prices from other countries.
“Trade has been a big part of the U.S. economy now, and a lot of goods that Americans buy are imported goods,” said Hoang Pham, assistant professor of economics at OSU. “A lead part of it is produced somewhere else, even made-in-America products.”
These reasonable prices, however, will see a price uptick due to Trump’s tariffs, and for many college students who don’t have much room in their budgets, this could spell trouble.
On Feb. 4, Trump implemented a 10% tariff on goods from China, and plans to put 25% tariffs on goods from Mexico and Canada — energy from Canada will see a 10% tariff — which is on a 30-day pause for negotiations.
The economic impacts of the tariffs on Canada and Mexico will be severe, Pham said, as the two countries are our biggest trading partners.
The proposed tariffs on Mexico and Canada could cost the average household around $1,000 in purchasing power and the implemented tariff on China could cost $223 per household, according to the Budget Lab at Yale University.
According to a White House fact sheet, the tariffs on Mexico, China and Canada are to hold the countries accountable for illegal immigration and smuggling fentanyl and other drugs into the United States.
The main goals of a tariff, called the “three R’s,” are revenue; restriction, or protect domestic manufacturers from foreign ones; and reciprocity, a foreign policy tool.
According to Ray, over the last 50 years, trade policy has largely moved away from tariffs, partially because of the notion of quid pro quo.
“If we put a tariff on Canadian goods, Canada is going to put tariffs on our exports to Canada and Mexico is going to put tariffs, or other kinds of holds on our exports to Mexico,” Ray said. “So we really suffer a double whammy.”
A tariff is akin to a sales tax, except it’s across international borders. The burden of the tax is shared between consumers and producers.
Once the tariff is imposed, the price difference will appear immediately, Pham said.
“How much of a 25% tariff on something will translate into an actual price increase to consumers really varies from product to product, but it’s always positive,” Ray said. “I mean, there will be price increases.”
For example, if you put a 25% tariff on candy bars from Canada, the sticker price of the candy bar may not increase that much — there’s lots of other countries to import candy bars from and the U.S. could even ramp up its own production.
“Consumers are probably pretty responsive to changes in prices of something like (candy bars),” Ray said. “So if prices go up very much, a number of people will just drop out of the market, not buy any, so that that keeps pressure down on prices going up.”
According to the Budget Lab at Yale, the predicted price increases are 1.8% for produce, 1.3% for gasoline — about 4 cents a gallon — and 5.7% for computers and other electronics.
The percentages may seem small, but the impacts on budgets will be felt, especially to middle- and low-income households.
“Everything bad that happens, whether it’s COVID or whether it’s prices or markets or mortgage rates or whatever, people who have the least amount of wherewithal and ability to cope with negative surprises are going to get hurt the most,” Ray said.
