Talking Tariffs
An emergency primer!
After threatening for months, Trump announced on Sunday that he would impose tariffs on Canada starting on Tuesday. (He has also threatened Mexico and China with tariffs.) I learned about tariffs in Macroeconomics, but hadn’t given them too much thought - until now. I cover most financial topics under the Five Pillars of Money (Earn, Save, Spend, Share and Invest) in The Wisest Investment: Teaching Your Kids to Be Responsible, Independent and Money-Smart for Life, including income tax and sales tax, but tariffs aren’t mentioned. So if you’re wondering what they are and how they work, and if your kids are hearing about tariffs and trade wars and asking questions, here’s what you need to know:
Tariffs
Tariffs are taxes imposed on imported (and sometimes exported) goods by a government. They are used to regulate trade, protect domestic industries, or generate revenue.
For example, suppose a U.S. company imports 100,000 lumber units from Canada, and the U.S. government imposes a 25% tariff on imported Canadian lumber.
Without Tariff:
Cost per unit of lumber from Canada: $500
Total cost for 100,000 units: $50,000,000
With 25% Tariff:
Tariff applied: 25% of $50,000,000 = $12,500,000
New total cost: $62,500,000
Cost per unit: $625 instead of $500
The U.S. has imposed tariffs on Canadian softwood lumber multiple times, but this time, tariffs will be imposed at a rate of 25% on all Canadian imports (with some exceptions.)
Impact:
Higher Prices for U.S. Consumers – Homebuilders and furniture manufacturers in the U.S. may face higher material costs, leading to more expensive homes and furniture.
Encouragement of Domestic Lumber Production – U.S. sawmills might benefit because their lumber becomes more competitive compared to the now higher-priced Canadian lumber.
Trade Disputes & Retaliation – At the time of writing, Canada had responded with tariffs on U.S. goods, including American beer, wine and bourbon, as well as fruits and fruit juices. Canada also said it would target clothing, sports equipment and household appliances. As noted in point 1. above, these tariffs usually get passed on to the consumer in the form of higher prices and for this reason, tariffs are considered inflationary.
Customs and Duties
If you’ve purchased something online that crossed the Canada-US border, for example, you may have paid “customs and duties”. What are they and how do they relate to tariffs?
Customs refers to the government agency that regulates the import/export of goods, enforces trade policies, and collects tariffs and duties.
Duties are specific taxes on imports and exports, often used interchangeably with tariffs. However, tariffs usually refer to broader trade policy tools, while duties are specific charges based on classification, value, or quantity of goods.
Sales Tax
Sales tax is a domestic tax on the sale of goods and services, usually applied at the point of sale to consumers.
Unlike tariffs, which target imported goods, sales tax applies regardless of the product’s origin and is meant to generate revenue rather than control trade.
In Ontario, where I live, there is a 13% Harmonized Sales Tax (HST) that is added to the cost of most goods and services at the point of sale. For example, a pair of sneakers priced at $100 will actually cost $113 at check-out. When Canada’s Goods and Services Tax was introduced in 1991, it was broken out separately to be fully transparent. But other countries include similar sales taxes in pricing, so that consumers know exactly what they’re paying. For example, in many European countries, their Value Added Tax (VAT) is already included in the final price you see in stores. (Tourists can often get a refund of some of the tax when they depart.)
A Deeper Dive 🎧
Day One of the Canada-US tariff war: From the Munk Debates and The Hub, this podcast episode focuses on the impact of US tariffs on Canada, the Canadian response to date and what could happen next.
Trump Goes Big With First Tariffs: What’s News from The Wall Street Journal podcast explains how President Trump settled on 25% levies on imports from Canada and Mexico, and how those two countries are responding to that opening salvo in what could become a continental trade war. (Things are moving fast and you may want to tune in to the PM edition of this podcast, because it’s just been reported that Mexico reached a deal with the US to delay the “Trump tariffs”. Oh, Canada!)
Even before the tariff wars began, exhausted by higher prices and the usual holiday spending and debt “hangover”, some people were pledging to buy nothing - or as little new stuff as possible in a trend dubbed “no buy 2025”. Curious? Learn more from WSJ Your Money Briefing podcast.