- If you've been thinking about upgrading your TV, smartphone, or video game console, you might wanna do that sooner rather than later, because according to estimates of the various tariff proposals being floated, these products might see price increases of 25 to 60%.

- Since so many of our electronic gadgets come from China, these goods are expected to be impacted by Trump's sweeping tariff proposal, but they're just the tip of the iceberg.

Unlike previous administrations that use tariffs selectively on certain industries or countries, the Trump administration wants to implement widespread tariffs on friend and foe alike.

- In early February, the US announced an increase of Chinese terrorists by 10%, slapped a 25% tariff on goods from Canada and Mexico, and a 25% tax on all steel and aluminum.

Seeing as how these are our top three trading partners, that includes a lot of things Americans buy, from vehicles to appliances, clothes, furniture, food, you name it.

- [Presenter 2] At the time of this recording, only the tariffs on China have actually taken effect.

But if they are all enacted, it would represent a return to an era of economic protectionism that quite frankly, few people alive today would even remember.

- And the impact to you could go way beyond a thousand dollars PlayStation.

(upbeat music) - Let's correct the big misconception about tariffs right off the bat, that they are taxes paid by foreign exporters who want to sell their goods in America.

This is wrong.

Tariffs are levied on the importers of foreign goods, meaning they are taxes paid by American companies and American consumers.

By artificially making foreign goods more expensive, the hope is to pressure Americans into spending their money on products made at home.

- Proponents of tariffs often cite the period between the Civil War and World War I as evidence of their beneficial effects.

At the time, tariffs accounted for around 40 to 90% of government revenue, and American industry was growing at a rapid pace.

But this was also a time of great instability marked by multiple depressions and vast economic inequality.

They don't call it the Gilded Age for nothing.

- During the Great Depression, in a desperate attempt to rescue the US economy, Congress passed a massive new tariff act called the, anyone?

Anyone?

The Smoot-Hawley Tariff Act.

Did it work?

Anyone?

Anyone?

The tariff increase backfired disastrously, further choking economic growth.

Some even credit it with contributing to the economic strife that empowered fascist European leaders of the 1930s.

It was pretty much the last time America tried to use large tariffs to improve the economy.

- That is until today.

Although Donald Trump seems to have single handedly rescued tariffs from the dustbin of history, it was globalization that set the stage.

The free trade policies enacted after World War II made a lot of economic sense for America at the time.

Our factories were humming, raw materials flowing, and lots of other countries wanted to buy our products.

But over the last 50 years, corporations realized the profitability of hiring cheap foreign workers.

Without any labor standards built into trade agreements, there were no downsides to moving factories abroad.

US manufacturing jobs plummeted, though some economists argue this was more to do with technology than free trade.

- Today, our trade deficit, the amount our imports exceed our exports, is the largest in the world, especially with China.

In other words, we buy a lot more from China than China buys from us.

To some, this is evidence that China is exploiting or beating us economically.

Indeed, China has a history of engaging in unfair trade practices like manipulating their currency, stealing intellectual property, suppressing wages, and keeping prices artificially low to dominate the market.

- We've used targeted tariffs to punish them in the past.

During Obama's final year in office, the federal government took in $12 billion from tariffs on China alone.

But what Trump is proposing goes way beyond that, taking us back to the protectionism of the late 19th century.

- And many Americans, especially those in regions hit hardest by globalization, are willing to go along.

To them, tariffs are increasingly seen as a symbol of prioritizing US workers over international trade.

- Unfortunately, they may be more effective as a political symbol than an actual economic tool.

Most economists warn that the pain of a blanket tariff policy would outweigh the gain.

- For starters, US importers aren't just going to absorb these new taxes.

Most will likely be passed along to the consumer in the form of higher prices.

Retailers like Walmart, which get the majority of their inventory from China, would likely have to implement sweeping price hikes.

And because many American manufacturers import materials and machine parts from abroad, some locally made items will get more expensive too.

Even US companies that don't import anything will be incentivized to follow suit, because when prices rise generally, as we saw under COVID, they know they can get away with it.

Economic studies of Trump's various tariff plans estimate that they could cost the average American household from around 2000 to $7,500 a year.

- There is also the danger of retaliatory tariffs.

China has already announced that they will respond with their own tariffs on American-made goods.

With fewer customers abroad, some US companies may have to scale back production and eliminate jobs.

- We've already seen these negative effects in action.

During Trump's first term, he slapped a 25% tariff on imported steel in an effort to bolster US steel production, and it worked.

The higher price of foreign steel did increase demand for American steel.

The industry grew by $1.5 billion a year by 2021, representing an increase of 0.3% in US manufacturing employment.

- However, American-made products that rely extensively on raw steel or steel products like autos, motorcycles, appliances, and farm equipment, became much more expensive to manufacture.

These companies scaled back production in response, lowering US manufacturing employment by 1.1%.

Retaliatory tariffs on American goods pushed the employment rate down even further for a net loss in US manufacturing jobs of 1.4%, according to a 2019 Federal Reserve Board study.

Oxford economics estimates that in 2021, this test round of tariffs reduced real household income in the US by $675 a year.

- Now, it's possible that given enough time, the economy would stabilize and wage gains would eventually outpace price increases.

But it could take years, decades even, to build the infrastructure and supply chains needed to fill the gap left by foreign imports.

And who's going to work in all those new factories?

The US population is shrinking, unemployment is already at historic lows, and unless Trump does a 180 on immigration, there won't be enough workers to make all the products Americans are accustomed to buying.

- Perhaps the revenue generated by tariffs could be used to create a safety net for Americans during this painful period, kind of like how Trump used taxpayer-funded subsidies to support American farmers who were hurt by China's retaliatory tariffs during his first term.

But Republicans have already indicated they plan to use much of the tariff revenue to finance another round of income tax cuts.

Since income taxes are only paid by wealthier Americans and tariffs fall disproportionately on the poor, this would shift the tax burden onto Americans who can least afford it.

- The downsides of these tariff plans as written are so great that many people assume it's all a bluff to pry concessions from foreign governments.

Indeed, despite years of claiming that his tariffs are about helping American workers, Trump now says the purpose is to stem the flow of drugs and immigrants over our borders, and perhaps it will work.

In early February, Canada and Mexico were both granted one month postponements of the tariffs in exchange for some border-related concessions, though some have pointed out that those concessions were fairly minimal.

- If this is really the true goal of Trump's tariff policy, that makes it less of an economic tool to strengthen US businesses and more of a diplomatic tool to influence foreign governments and international business trends.

But this strategy carries its own danger: corruption.

- One of the criticisms of the tariff policy of the late 19th century was that exemptions were often based on political influence, and that doesn't seem to have changed.

A 2024 study found that firms that donated heavily to the Republican party during Trump's first term were more likely to be awarded exemptions than those that donated to Democrats.

- And getting a tariff exemption from the government can be a massive business advantage.

If an electric car company, for instance, is allowed to import Chinese batteries at a lower price than their competitors, they can sell their cars cheaper and dominate the market.

Effectively, it empowers the government to pick winners and losers.

- [Presenter 2] It's still too early to tell what final form Trump's tariff policy will take, and economists can't really be sure what the effects will be.

Perhaps it will lead to another boom in US manufacturing, but even his advisors concede that there will be a period of pain first.

- The most you can do is be ready to adjust your budget to account for higher prices on at least some items.

And as always, keep an emergency fund in case of an unexpected layoff.