The Trump administration announced sweeping tariffs on some of the United States’ largest international trading partners’ various imported goods.
A 25% tariff has been levied on imported Mexican and Canadian goods with a notable exception being made for imported Canadian energy resources, which received only a 10% tariff. Additionally, the Trump administration increased the existing tariff rate on imported Chinese goods by 10%.
The tariff on imported Chinese goods went into effect on Tuesday, Feb. 4. However, a 30-day hold has been placed on the tariffs for Canadian and Mexican goods as the nations’ governments took additional steps to secure their respective borders with the U.S.
The Paisano sat down with Professor Samson Alva, Chair for the Economics Department at UTSA, to discuss what tariffs are, what effects they have on the prices UTSA students may face and when price changes may take place.
What is a tariff?
Tariffs, simply put, are a tax placed on goods imported from other nations. A tariff is very similar to a sales tax; however, the main difference between a tariff and a sales tax is that a tariff is levied on a company at the point of entry, not the point of sale to the consumer.
“It’s often a tax that is actually paid by businesses when they’re importing intermediate components or parts as part of their production process,” Alva said.
What effects do tariffs have?
The effects that tariffs have on the final prices consumers face on the shelf or at the pump depend on numerous factors. However, overall tariffs generally lead to an increase in these prices.
“The effects of tariffs is generally to raise the cost of the final consumer goods,” Alva said. “The amount that different goods get affected depends on how much of the good that you buy from the store has components or ingredients that come from countries that have tariffs imposed on them.”
There is a common misconception that the company or nation that the government levies a tariff against will pay the full tax. However, this is usually not the case.
“In many industries and for many different consumer products, most of taxes and tariffs end up getting passed through to the final consumer,” Alva said. “Right now there is a 10% tariff on essentially all goods being imported from China at the point of entry. That 10% is going to be paid by the importer.
“They’re paying it out of their pocket, but they’re gonna pass that cost on because most of these importers work on relatively low margins, so most of that gets passed on down the supply chain, and eventually it will come to hit consumers.”
When can consumers expect price increases?
Another misconception about tariffs is that their effect on the prices of imported goods will be swift. However, the price increases that consumers may face as a result of the tariffs placed on Chinese goods — and Mexican and Canadian goods if the tariffs are implemented after the 30-day hold — will take time to develop.
“It won’t hit immediately,” Alva said. “[The tariffs] will not immediately impact the final consumer. It could be anywhere from a few weeks to a few months, depending on the nature of the good, depending on how much can be absorbed by the producers in the interim, how much they’ve stocked up in inventory and supply anticipating some of these effects.”
What products may see price increases?
With the 10% tariff on imported Chinese goods, a lot of final consumer goods will start to see price increases in the coming months. This can be clothing, home appliances or medium-end electronics. Automobile manufacturers also import a lot of car parts from China, which may see price increases as well.
“If you look around in your own apartment, dorm room, wherever, most of your goods are coming from the [Peoples Republic of China],” Alva said. “These are often goods that have very low margins.”
Should the 25% tariffs on imported Mexican and Canadian goods, consumers will likely see rapid price increases on various everyday items.
A large portion of the produce sold and consumed in Texas is grown in Mexico and shipped across the border to be sold in U.S. markets. Specifically, the prices of berries and avocados may rise as a result. Produce is not well insulated from tariffs due to low operating margins and direct farm-to-market shipping infrastructure. Produce grown in Mexico will see price increases if tariffs go into effect.
“Grocers operate on extremely thin margins, so they can’t absorb the tariff. The producers also operate on thin margins, they can’t absorb the 25% into their own costs, they’re gonna pass that on into price increases,” Alva said.
Canada is one of the largest exporters of crude oil to the United States. According to the U.S. Energy Information Administration, Canada accounts for 52% of imported crude oil, and Mexico accounts for 11%. In total, approximately 63% of crude oil imported into the United States would have an additional 25% tax if these tariffs were to go into effect.
“We do import crude oil from Canada, which then gets processed in the United States or re-exported,” Alva said. “The tariffs hitting Canada would have had a much more quick impact on things like oil and gasoline at the pump.”
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