Tariffs are one of the oldest types of taxes, and they are easy to collect. During America’s “Colonial Period,” when the British ruled the country, tariffs enabled one of the earliest forms of tax evasion: smuggling. In the north, with its long coastline and many small rivers, Rhode Island became the hub of smuggling to avoid British taxes.
When Alexander Hamilton became our first Secretary of the Treasury, the USA was in deep debt, so his first order of business was to prepare a schedule of tariffs and excise taxes on extras like alcohol and tobacco. The Constitution forbids taxing states, which is why tariffs are only on imports!
The 2 Main Objectives for Tariffs are:
1. Raising Revenue and
2. Protection of Domestic Industries from Foreign Competition
The garment industry is a good example of protecting the domestic industry. Many years ago, in the 1950s and 1960s, when my Grandma Anna was a “sample maker” for Diane Von Furstenberg in the “Garment District,” most of our clothing labels said “Made in the USA!” Now they are made in China, Thailand, Cambodia, Bangladesh…because these countries have lower wages and much cheaper labor.
After World War II, much of Western Europe and Japan’s economies were weakened. Reviving world trade was of paramount importance to the USA and our international trading partners. For this reason, the USA agreed to “Differential Tariffs,” meaning that we would lower our tariffs more than other countries would lower their tariffs in order to help them recover from the cost of war and boost global trading!
Now, 80 years later, Western Europe and the Far East economies have fully recovered. Yet in many cases, “Differential Tariffs” still exist! That is why the current administration has opted to try and level the playing field.
Tariffs can be tricky, as there are many ripple effects. They are considered a “consumption tax” which affects the poor disproportionately because they must spend a higher portion of their income on necessities!
Logic tells us that rising imported steel and aluminum prices will cause significant increases in building or rebuilding homes that are affected by inclement weather conditions. The ripple effects will lead to more increase in homeowners’ insurance premiums.
President Trump recently doubled the import tariffs on steel and aluminum from 25% to 50%. This will have an adverse impact on the prices of large, imported items such as cars, trucks, refrigerators, and washing machines. Smaller items that will be affected include but are not limited to soda, beer, canned soups and vegetables.
The tariff impacts on cars and trucks include the following:
1. New Cars and Trucks: Sales prices of imported cars and trucks are expected to go up by at least the percentage of the import tariffs. Average costs are expected to rise by $3,000 per vehicle. The vehicle’s “replacement cost” directly ties into auto rates!
2. Rising Costs for Auto Parts: Currently at a 25% tariff, auto parts and repairs make up a portion of your auto insurance rates. There is also a shortage of “rare-earth” minerals (China controls them and stopped exporting them) that make heat-resistant magnets needed for Electric Vehicles. A FORD factory in Chicago has already closed.
3. Replacement Parts: 60% of auto replacement parts come from Mexico, Canada, and China.
4. National Projections: The American Property and Casualty Insurance Association projects annual auto claims could go from $23 billion to $45 billion.
5. Impact in New York: The state is expected to see among the highest increases in the country! On average, residents could face an increase of $489 by the end of this year with $110 of that increase directly tied to tariffs.
This is a difficult situation that will affect all Americans.
Options to reduce your auto rates are:
1. Shop your Auto Insurance Now, then go to steps two and three
2. Take the “Defensive Driver” course for a 10% discount per year, good for 3 years!
3. Consider the “Safe Driver” monitoring programs that most insurance carriers offer. Discounts can run between 10%-30%, depending on the insurance carriers and how long they monitor your driving.