Do you know what a federal tariff actually is? Do you realize that it is actually a Federal Sales Tax that we pay? If interested, you might find this pearl on tariffs non-taxing.
The purpose of this pearl is to put in plain language what tariffs are and what are their positive and negative effects are for you. You can go on line and review a myriad of discussions about tariffs that are more confusing than illuminating. I hope that this discussion is more illuminating than confusing.
Understanding Taxes:
Definition: Taxes are contributions required for the support of the government composed of persons, groups or businesses within the domain of that government.
Other than property taxes, the two main taxes U.S. citizens pay are Income Taxes on what we make and Sales Tax on what we spend—they get us coming and going. Income taxes are levied by state and local governments to pay for their services and federal income taxes (IRS) are levied by the federal government for running the country. We are familiar with the sales taxes that are levied by state and local governments, but we are not familiar with sales tax levied by the federal government under the deceptive name of "tariffs". They are called tariffs instead of Federal Sales Taxes to confuse us into thinking that we aren’t paying another sales tax, but we are. The fact is that congress could theoretically levy a nationwide federal sales tax under Article I Section 8 of the U.S. Constitution, but Congress has declined to do so—unfortunately, by allowing a POTUS to levy tariffs, they have already created a Federal Sales Tax. Maybe congress should look into this, but they won't.
Understanding Tariffs:
Definition: Tariffs are duties imposed by the federal government on imported or exported goods.
The feds use the term "tariffs" to confuse us into thinking that we are not paying another sales tax—but tariffs definitely are a Federal Sales Tax. Even though congress can theoretically levy a nationwide federal sales tax under Article I Section 8 of the U.S. Constitution, it has declined to do so, probably because the Federal Sales Tax already exists, cloaked in the term “tariff”. U.S. citizens pay the tariffs on imported goods and the citizens of other countries pay the import tariffs for the goods we export to them. This Federal Sales Taxes can significantly increases the cost that U.S. citizens pay for those products and presently provides insignificant revenue for the U.S. government.
Bottom line, a tariff is just a Federal Sales Tax that U.S. citizen’s pay, nothing more and nothing less.
Positive Effects of Tariffs:
The one positive effect of import tariffs is to offset the cost of products that the government of the country of origin subsidized its manufacturing in order to sell those products in the U.S. for less than a competing U.S. companies. For example, tariffs on imported cars, imported materials such as aluminum and steel, foodstuffs, clothing, etc. However, when a power-happy POTUS abuses tariffs to leverage other countries into giving him what he really wants from them it has no positive effect.
Negative Effects of Tariffs:
Export tariffs increase the cost of U.S. products to other countries. While this has no effect on the Federal Sales Tax we pay, it does increase the cost that products the U.S. exports to other countries, making the U.S. companies and their workers who produce these products less competitive, lowering their sales and revenue.
Import tariffs increase the cost of imported products in the form of a Federal Sales Tax, which may or may not be acceptable. It is unacceptable when this Federal Sales Tax increases the cost of imported products that we preferred over competitive U.S. products—examples are luxury cars, foodstuffs, clothing, etc. The U.S. produces many high quality products that are better than most countries produce, but not everything.
Tariffs are inefficient because they distort markets, raise prices for consumers and businesses, and can lead to retaliation by other countries, ultimately hindering economic growth and global trade.
Tariff wars between a POTUS and the leaders of other countries are actually a war on its people. The governments do not pay the price for conducting this war, its people do. These governments surreptitiously pick the pockets of its citizens to reap a little revenue, but mostly to gain ego power over the other country. Instead of boosting the competitiveness of U.S. businesses, trade wars increase the cost of products for its citizens and invites harmful retaliatory tariffs, making it harder for U.S.-based businesses to compete around the world. It also causes inflation to increase and could trigger a recession.
In 2025 and beyond, there is a 25% tariff on steel and aluminum imports from all countries and tariffs on imported machinery, which the POTUS thinks will revitalize American manufacturing. If it does, it will only apply to imports that have a small mark-up (<50%) from manufacturing to sales, for example, car engines. This tariff has little meaning when a product's manufacturing produces only 20% of the sales income and the services produce 80%. For example, a $100 pair of sneakers only costs $20 to manufacture, but costs $80 in services to package, market and ship in order to sell them wholesale and retail to the public.
Government Revenue from the Federal Sales Tax:
There are a lot of numbers and opinions about how much the Federal Sales Tax actually costs a U.S. citizen. It is all based on the following numbers: 1) how many billions of U.S dollars the U.S. imports from a country, 2) the import tariffs imposed on that country, and 3) the number of U.S. citizens (330 million) or U.S. families (129 million) paying for this Federal Sales Tax.
In the 2024 fiscal year the government collected over $80 billion in tariffs and fees from 190 countries. Eighty billion sounds like a big number, but it is only 0.52% of the $4.2 tillion the federal government collected from Income, Social Security and Medicare taxes. Below are the U.S, statistics of the major countries that we imported $3,212 trillion in products from in 2024.
The U.S. imported $740.9 billion in products from the EU, 23.1% of all U.S. imports. At this writing, there are numerous tariffs on EU imports.
The U.S. imported $512.2 billion in products from China, Hong Kong & Singapore —15.9% of all U.S. imports. At this writing, there is a 20% tariff on all Chinese imports.
The U.S. imported $510.0 billion in products from Mexico—15.8% of all U.S. imports. At this writing, there is a 25% tariff on Mexican imports.
The U.S. imported $421.2 billion in products from Canada—13.1% of all U.S. imports. At this writing, there is a 25% tariff on the $16.5 billion from the import of Canadian steel and aluminum products.
The U.S. imported $152.7 billion in products from Japan—4.75% of all U.S. imports. At this writing, there is a 2.5% tariff on Japanese car imports.
The U.S. imported $142.5 billion in products from Vietnam—4.43% of all U.S. imports.
The U.S. imported $135.5 billion in products from S. Korea—4.22% of all U.S. imports.
The U.S. imported $91.23 billion in products from India—2.84% of all U.S. imports.
The U.S. imported $16.6 billion in products from Australia—0.52% of all U.S. imports.
The other $978 billion (30.5%) of imports refers to the rest of the exporting countries.
Understanding Trade Deficits:
Definition of a “Trade Deficit”: “The condition that exists when the value of what a country imports exceeds the value of what it exports.” Basically, a trade deficit is the dollar amount of the goods and services we sell to another country minus the dollar amount of the goods and services they sell to us.
The fact is that a rich country can afford to buy what it wants from other countries that may not need nor be able to afford to purchase any goods and services from us. Bangladesh may have no need for our products or services although, we like their clothing products, which are cheaper than our own, so why place tariffs on them. The fact is that their cheaper prices more than account for our trade deficit with them. POTUS-47 tariffs on these small countries are absurd and unnecessary—a trade deficit will always exist between poorer countries and us, which is fine. Also, the trade deficit between other countries and us that are neither poor nor rich (for example Vietnam, India, S. Korea, etc.) is another story and each has to be considered separately.
The large USA trade deficit with a rich country that can afford and might need our products and services is another story—China is an example of this. The fact is that China can afford and needs our products and services, but instead of purchasing them they tend to steal them. This type of trade deficit must be addressed and deliberate.
Bottom Line on how the Federal Sales Tax Effects You!
There are 330 million citizens and 129 million families in the us paying that $80 billion in Federal Sales Tax in 2024, costing each citizen $242 and each family $620 in Federal Sales Tax. It has been estimated that over the next 10 years that an average 10% Federal Sales Tax will generate $2.2 trillion, costing each citizen as much as $666 and each family as much as $1,705 per year in Federal Sales Tax. It has also been estimated that over the next 10 years, that an average 20% Federal Sales Tax will generate $3.3 trillion, costing each citizen as much as $1,000 and each family as much as $2,580 in Federal Sales Tax per year.
Imported products that are not subject to U.S. tariffs are: furniture, carpets, paintings, tableware, stereos, linens and similar household furnishings, tools of the trade, professional books, implements, and instruments. If you buy a lot of cheap products from China and Mexico you might want to Google those kinds of products for the best price from U.S and other countries, even if it doesn't have next-day free shipping.
I hope that this discussion has helped you to better understand what a tariff is—a Federal Sales Tax—so that you can better cope with these erratic federal government so-called tariffs.
