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  • iPhones, umbrellas, shoes.

  • These are just some of the common items that make up the $505 billion worth of goods that are made here in China.

  • And are imported here to the United States.

  • President Trump is unapologetically adding and increasing tariffs on many imports, prompting retaliation from China and others.

  • So how do tariffs work, and what do they mean for the economy?

  • A tariff is a tax on items entering or leaving a country.

  • The money collected under a tariff is called a duty or a customs duty.

  • And in the United States those duties are collected by the U.S. Customs and Border Protection.

  • Last year, U.S. import duties totaled up to $33.1 billion.

  • That's 1.4% of the total value of all imported goods.

  • That makes U.S. tariffs among the lowest in the world.

  • But that doesn't mean every item entering the U.S. is facing a 1.4% tariff.

  • There's a huge range.

  • Some items aren't taxed at all, while others, like shoes, are taxed at around 11%.

  • And upping that 11% to something like 25% or 30

  • Especially when you consider that 98% of shoes sold in the U.S. are made overseas.

  • Let's say I'm buying watches from China to sell at big-box retail stores here in the U.S.

  • Say each watch costs me $10.

  • Add in a 20% tariff to that, and I now have to pay $12 per watch.

  • $2 doesn't sound like much but if my order is 15,000 watches, my total cost has now gone from $150,000 to $180,000.

  • That 20% tariff on watches cost me an unexpected $30,000 on goods.

  • So if tariffs cost businesses so much money, why have them in the first place?

  • Well, there's two main reasons.

  • First they raise money.

  • That revenue goes to the general fund of the U.S. Treasury, which helps pay for running the government.

  • Last year, the U.S. collected almost $35 billion in duties.

  • Number two, tariffs can help protect some domestic industries from competition abroad.

  • Think of it this way: if you're charging "Made in China" more money that makes "Made in America" suddenly seem more affordable.

  • Let's go back to our watch example.

  • If my manufacturer in China is sending over a batch of watches that cost me $12 instead of $10, I might find a cheaper way to make them here in the U.S. to avoid paying that 20% tariff.

  • But my supplies used to make the watch are likely going to need to be imported, likely, still from China.

  • And those supplies probably will have their own tariffs too.

  • You can see how this can get complicated.

  • There's another option.

  • I could also potentially buy from another country that's not subject to the tariffs on products from China, like India or Vietnam.

  • That's bad news for China.

  • But it's not just China that Trump has been after.

  • When the U.S. president introduced billions of dollars in new tariffs, countries like Canada and Mexico, as well as the European Union, were quick to react and retaliate.

  • So why is he kicking up the controversy with America's biggest allies?

  • Trump says he wants to dramatically reduce the U.S.' trade deficit with other countries.

  • A trade deficit is the amount by which a country's imports exceed the value of its exports.

  • Trump is hoping that by introducing drastic tariffs it will reduce the size of the U.S.' trade deficit, and he's particularly focused on China.

  • The U.S.-China trade deficit is estimated to be $370 billion.

  • He hopes to reduce it to $200 billion by 2020.

  • So what does all this mean for consumers?

  • When tariffs are put into effect, the person likely paying for that increase in cost is you and I.

  • A number of American companies have said increased tariffs will hurt their businesses, and ultimately they'll have to increase prices for consumers.

  • In the weeks following Trump's announcement, prices went up on items ranging from a can of Coke to toilet paper and kitchen towels.

  • And some companies like Kimberly-Clark, which makes Huggies and Kleenex, have even lowered their annual forecasts.

  • And the tariffs could badly hurt Chinese companies and their products too.

  • Some of the largest items that the U.S. is shipping to China include things like soybeans, aircraft and electrical machinery.

  • So, when China retaliated by announcing a 25% tariff on U.S.-made airplanes, that was a direct hit to Boeing, and the company's stock price fell on the news.

  • Boeing is selling planes to China Southern Airlines Group, which plans to buy more than 300 aircraft in the next three years.

  • So with higher tariffs on U.S. planes, it could buy a larger share of airplanes from say France's Airbus instead.

  • The vast majority of economists surveyed by a Reuters poll said that import tariffs would do more harm to the U.S. economy than good.

  • Yet, like most things with President Trump, he's standing his ground, as governments, companies and consumers scramble to see what's next.

  • Hey guys, it's Uptin.

  • Thanks for watching!

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iPhones, umbrellas, shoes.

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B2 US china tariff deficit trump cost imported

How do tariffs work? | CNBC Explains

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    Fibby posted on 2019/09/27
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