Hi everyone!
This week, we’re diving into a term that’s been popping up a lot lately: tariffs. Whether you’ve heard the word on the news, in class, or even in a heated TikTok comment section debate (more common than you think). But don’t worry, we’re going to break it down so you can understand, and it makes sense.
So, What Is a Tariff???
Let’s keep it simple: a tariff is a tax on imported goods. Essentially, a fee is added to products entering a country from another location. So, for example, if you’re buying a phone that was made overseas, a tariff would make it more expensive as it is being taxed.
It’s a way for governments to make money and to encourage people to buy things made within their own country. Sounds straightforward enough, right? But in reality, it gets a little more complicated than that.
A Quick History of Tariffs in the U.S. (ft. Alexander Hamilton)
Believe it or not, tariffs are not new. In fact, they’ve been a key part of America’s financial playbook since the very beginning. Way back in 1789, Congress passed the Tariff Act, largely influenced by Alexander Hamilton (yes, the same one they made a musical about).
At the time, tariffs made up over 90% of the federal government’s revenue. Why? Because income taxes didn’t really exist yet: the modern income tax system didn’t show up until 1913. So, all the government’s money came from tariffs. That money was generally used for the public good, such as building schools and parks. It was additionally used for paying back debt to other countries after the American Revolution.
So, tariffs were how the U.S. government paid its bills. But as income tax became the norm, tariffs slowly stepped out of the spotlight. That said, until the Great Depression came around.
Then Came the Great Depression…
Fast-forward to 1929: the Stock Market Crash hits. In response, the U.S. increases tariffs again, imposing heavy tariffs on imported goods to protect American farmers businesses. But Europe was far from thrilled, and they retaliated with their own tariffs.
The result? Global trade dropped by two-thirds. Put simply, it was a huge collapse from the previous thriving international trade. What was supposed to “protect” the economy ended up making things worse by isolating the U.S. from the rest of the world.
Tariffs in 2025: Back in the Headlines
Lately, tariffs are back, and in a big way. The U.S. has introduced a new round of tariffs on imported goods from all countries.
Here’s the breakdown:
- A 10% base tariff on most imported goods
- Up to 34% on goods from China
- Around 20% on products from the European Union (EU)
The idea behind these tariffs is to encourage Americans to buy more American-made goods. It’s a “keep it local” kind of plan. But in reality, it hasn’t exactly worked that way. If we look at the effect of them 3 months after they were introduced you may notice it mirrors what happend in 1929; other countries arent happy and retaliate once again with their own tariffs.
But Wait… Why Are Prices Going Up?
Many of the things we use every day are made outside the U.S.: phones, electronics, clothes, and even certain foods. So when tariffs make those items more expensive to import, guess who ends up paying more?
If you said us, you would be correct. The consumer.
Even worse, a lot of U.S.-made products rely on foreign materials to be built in the first place. So if the materials are taxed at a high rate, the final product gets more expensive, even if it’s made in the U.S. And I don’t know about you, but it feels a little counterproductive that the “locally-made” goods are the ones going up in price, even though they are the ones encouraged to buy.
In a recent report by Felix Reichling for the Penn Wharton Budget Model, it’s predicted that over time, America’s Gross Domestic Product (GDP)—aka the total value of everything we produce—may drop by almost 6% because of these tariffs.
Let that sink in. The goal was to boost the economy. But if the costs outweigh the benefits, the result might be the exact opposite.
So, Are Tariffs Good or Bad?
The truth? It’s complicated. Tariffs can protect certain industries in the short term, but they can also lead to:
- Higher prices for everyday goods
- Trade wars with other countries
- A drop in economic growth
Understanding tariffs helps you see how global decisions affect your day-to-day spending, from your grocery bill to the cost of your next phone.
Final Thoughts
Tariffs might sound like an old-school policy from history class that feels outdated and unimportant to take note of, however, they’re still shaping how much we pay and how the economy moves. Whether you’re interested in business, politics, or just want to make smarter spending decisions, knowing how tariffs work gives you an edge.
And if you’re still wondering how all this fits into your life as a teen or young adult—trust me, it does. Because if you’re spending any money your feeling the effects of it.
Let me know if you have any finance terms you’d love broken down next week!
With love,
Sophia