Businesses and consumers navigate tariff terrain

Shortly after his first inauguration, President Barack Obama made the impact of elections clear: they have consequences.

His famous comment, “Elections have consequences,” was a focus in a 2014 Christian Science Monitor look-back article on the Obama presidency, saying that during a meeting with congressional Republicans about his economic proposals, “Mr. Obama was later quoted as telling GOP leaders that ‘elections have consequences,’ and, in case there was any doubt, ‘I won.’”

In an example of what goes around comes around, “Elections have consequences” is back, this time in the form of the second Donald Trump presidency. Now into its third month, the Trump administration has been a whirlwind of activity on multiple fronts. One that has businesses and individuals considering their financial planning, projections, and goals is the much-publicized issue of tariffs.

Tariffs can be used to level the trade field between the U.S. and other countries, or even punish other countries’ policies by making their goods more expensive in the U.S. Tariffs can protect U.S. companies from unfair competition. But, for every economic action, there is a reaction: what the U.S. does to other countries, they may do to us. At that point, it can become an international game of trade “chicken” to see who will back down first.

A central question is this: do higher tariffs also raises prices for consumers? The answer: yes. A tariff is a tax, not on individuals, but on goods arriving in the U.S. from other countries. If something costs more to place into the American market, costs will be higher for Americans.

Whether Americans believe increased tariffs benefit or harm them may depend on who’s ordering the tariffs. On Sept. 14, 2024, less than two months before the election, a New York Times headline proclaimed, "CHINA’S PRODUCTS FACE NEW TARIFFS IN PUSH BY BIDEN. PRICES LIKELY TO RISE. Measures add to Trump levies, which report found effective.”

In that long headline are two seemingly contradictory statements: prices likely to rise, and that an analysis had found Trump’s (first-term) tariffs to be effective. The accompanying story said the Biden-ordered tariffs on Chinese imports of “clothing, solar panels, electric vehicles, syringes, steel and other goods” were to protect American factories and show a tough-on-China approach ahead of the election. And they would raise prices.

Trump’s second-term tariff increases – broader and affecting more countries - will have similar price effects, and it’s unclear how long it will take to achieve Trump’s trade balance goals. Eventually, it’s hoped a leveling will occur that might satisfy most, or all, trade partners. Therefore, business leaders and individuals are conferring with their accountants and financial advisers, trying to map out a response plan in this fluid environment. But they might have had to do the same thing over taxes if Kamala Harris had been elected.

Harris’ plan called for raising the corporate tax rate from 21% to 28%; that, too, would have raised prices. Both raising tariffs and raising corporate taxes result in higher business costs and typically result in price increases. Businesses don’t pay taxes; consumers who buy from businesses pay the taxes.

It’s fair to say that a significant percentage of people opposing tariffs would have supported higher business taxes, and that Americans against higher taxes might well be supportive of Trump’s increased tariffs.

Either way, it’s the consumer who pays. The questions are how much, for how long, and to what end? Those, eventually, are the important consequences for consumers and businesses.

This originally appeared in KnoxNews.