While attending the annual meeting of leaders of countries that belong to the Group of Seven last week, President Donald Trump criticized as “ridiculous and unacceptable” tariffs imposed on American goods by other countries.
An advocate for free trade among nations, Trump said he believes the United States has for too long been the loser on trade deals with other countries. On Saturday, he vowed to put an end to “being like a piggy bank that everybody is robbing.”
Before leaving the meeting, he reiterated that he wants to eliminate all tariffs and subsidies on trade between the seven allies.
What is a tariff and why is the president upset by them? Here’s a look at trade tariffs and what they do.
What is a tariff?
A tariff is a tax on imports or exports that increases their prices. Tariffs are used by governments to make foreign products less attractive to consumers in order to protect domestic industries from competition. Money collected under a tariff is called a duty or customs duty.
What types of tariffs are there?
There are two types of tariffs – an ad valorem tariff and a specific tariff.
An ad valorem tariff is a tariff that is a fixed percentage of the value of an imported good. If the price of the imported good goes up, the ad valorem tariff goes up. If it goes down, the tariff goes down.
For instance, if a company exports an item to the United States costing $50 and the ad valorem tariff on that product is 20 percent, the company would have to pay the tariff -- $10 in this case -- to export the product to the U.S. If the price of the item goes up to $75, the company will have to pay a tariff of $15 to sell the item in the US.
A specific tariff is a fixed amount of money placed on the item no matter the cost. Say there is a $20 specific tariff on that $50 item. The company exporting the item to the US would have to pay $20 to sell the item in the U.S. If the item goes up in cost to $75, the company will still have to pay $20 to export the item.
Why should I care if the US government puts a tariff on items? The manufacturer pays for that, right?
Sure, manufacturers pay the tariff upfront, but the cost of the tariff will be passed along to the consumer. Or, if the cost of the tariff is too high for those exporting goods, then they stop exporting goods.
Tariffs affect the cost of goods you buy, and the U.S. buys many more products than it sells. In April, the U.S. sold $211.2 billion in goods to other countries, according to the Bureau of Economic Analysis, and purchased $257.4 billion worth of goods from other countries.
So, why slap tariffs on goods if it will hurt the US consumer?
The theory is that as goods made by people outside the U.S. get more expensive, manufacturers within the country will either increase their production of the product or other companies will begin to produce the product, thus strengthening the U.S. economy.
What happened with tariffs surrounding the G-7 summit in Canada, and why are U.S. allies angry at Trump?
Trump left the G-7 summit early on the way to his summit with North Korean leader Kim Jung-un. He tweeted from Air Force One that he was withdrawing his support for a communique (or agreement) crafted during the summit. The agreement referenced shared priorities among the seven allies, such as their standing on trade, sustainability and national security.
Where do the hard feelings about tariffs come in?
In the days prior to the meeting, the United States imposed a 25 percent tariff for steel and 10 percent tariff for aluminum on imports from Canada, the European Union (EU) and Mexico. Trump claimed the move was made to protect US security.
Trump also complained about Canada’s tariffs on dairy products. Canada levies a tariff of 270 percent on milk, 245 percent on cheese and 298 percent on butter. The tariffs are in place to protect the Canadian dairy industry, effectively eliminating any foreign competition.
In his tweet about withdrawing support for the communique, Trump criticized Canadian Prime Minister Justin Trudeau, calling him “weak and dishonest” for his comments about the U.S. tariffs on steel and aluminum.
Trudeau responded by announcing that Canada will impose retaliatory tariffs on $12.8 billion worth of US goods including yogurt, beer kegs, non-decaffeinated coffee, steel rods, sleeping bags, toilet paper, plywood, bobbins, “Combined refrigerator-freezers, fitted with separate external doors” and scores of other items.
The EU has promised similar tariffs against the United States.
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