Last week, the United States unveiled a wide range of tariffs on products imported into the country. As a result, other countries have enacted their own tariffs against American-made goods.
While it’s still too early to know the full impact of these actions on personal finances, there are things you can do now to lessen their impact on you and your family. This post will offer a brief primer on tariffs, what’s happening with them now, and four things you may want to do as a result.
What are tariffs?
In layman’s terms, tariffs are like a sales tax for goods imported into a country.
Think of it like this. A $1000 TV in the store has 10% sales tax, so it costs you a total of $1100 to buy it.
If that TV is valued at $1000 when it arrives, then with a 10% tariff, it costs $1100 to import it into the country.
Who sets tariffs?
Tariffs are set at the national level by the federal government. The Custom and Border Protection agency collects the tariffs, and that money goes into the U.S. Treasury.
Who pays for tariffs?
This is a complicated question and a main reason why there is uncertainty around the impact of the newly imposed tariffs.
In a direct sense, the importer (either person or company) pays the tariffs on the product(s) they bring into the country.
But, unlike a sales tax where you the buyer are the last and only person who can pay that tax, importers pay tariffs on a product before it’s sold. This means they can raise the price of that product to cover the cost they pay on the tariff. In this way, it’s possible the consumers will ultimately pay some or all of the new tariffs.
How will tariffs affect my finances?
Given the uncertainty of who will bear the brunt of paying for new tariffs, it is too early to fully know their impact on your personal finances. But, many leading economists believe that the new tariffs will result in increased prices for many products, ranging from new cars to bananas; lumber to French wine.
Here are four things you can do to prepare for the potential of higher consumer process.
Revisit your budget
If you have a yearly or monthly budget, make across-the-board increases in costs for what you expect to spend. That amount can be between 5-10%. See how this affects your ability to afford essentials, like food and electricity, and discretionary items, like vacations or a new TV. Make a plan to adjust your spending accordingly if prices start to rise.
Consider making a purchase now
Big ticket items, like new cars and trucks, are expected to be one of the first items to increase in price. If you are in position to do so, consider making that purchase now. We have new low auto loan rates that can help save you money if you decide to buy one.
Review your retirement savings accounts
So far, stock markets have reacted negatively to the new tariffs. These declines affect the returns and balances of your retirement accounts, like an IRA or 401(k). Now is a good time to review your holdings, make sure they are diversified enough to weather the current uncertainty and are still aligned with your short- and long-term goals.
Don’t panic
No one has an economic crystal ball. We don’t know what the ultimate impact of these tariffs will be. We don’t know how long they will stay in effect. Over-reacting in the moment could end up costing you more in the long run. Know your financial situation, make a plan, and consult with experts. We have member advisors ready to review a plan with you. Set an appointment here.
