Tariffs: What’s the Big Deal & Why Should We Care?

The word tariff probably doesn’t need much of an intro anymore. In today’s Trump-this, Trump-that climate, it’s everywhere — in headlines, political debates, even TikTok. You might be wondering: “What’s the fuss? Why should I even care?”

Well, here’s why. The US and China — the world’s two economic giants — have been locked in a trade war, and the weapon of choice? Tariffs.

Let’s simplify this into three big words: Tariff, Trump, China.

So… What Is a Tariff, Really?

A tariff is just a fancy word for tax — specifically, a tax on imported goods. Think of it like this: You walk into a store, grab something made overseas, and the cashier says, “Hey, there’s an extra charge because this isn’t local.” That’s a tariff.

Who pays for tariffs? Legally, the importer pays tariffs to the government. However, the economic cost is often shared. Importers may absorb the cost (lower profits) or pass it on to consumers through higher prices.

Why Tariffs, Though?

Under Trump’s “Make America Great Again” vision, tariffs were used to “protect” American jobs and businesses. The idea was simple: make imported goods more expensive so consumers turn to American-made products or what he wants – make the products IN America.

But it wasn’t just China — the US targeted many countries it had a trade deficit with. (A trade deficit means the US is buying more from a country than that country buys from the US.) Yes, Malaysia was included too.

How Are Tariffs Supposed to Work?

Let’s say Malaysia exports furniture to the US. A tariff increases the price of that furniture for American buyers. When prices go up, demand usually goes down — that’s the law of demand.

So, in theory, Americans buy fewer Malaysian chairs and more local ones.

But here’s the catch: What if American-made furniture isn’t available? Or it’s too expensive? Or the quality isn’t there? That’s where theory clashes with reality.

When Tariffs Backfire: Inflation

Let’s imagine, there is a US company that makes a solar panel in the US. When it wants to build a solar panel factory, they would actually import an assembly line as seen below:

Our Malaysian company, such as Greatech makes these assembly lines. Now, it’s been tariffed with 10%. This means that the US company has to pay 10% of the cost to the US government.

It doesn’t stop there. Something that can happen is this – The US company can no longer afford 10 assembly lines, modifying the order to only 8. Now, our Malaysian company loses out on not only just this sale but maybe future sales as well.

Maybe in Trump’s mind, he thinks that this US company will buy locally. However, due to how specialized this is, it can’t find any supplier that can offer that price and quality. This is a lose-lose situation.

What Can Countries Do?

When slapped with high tariffs, countries usually respond in two ways: retaliate or negotiate. Imagine you’re China. The US imposes a 145% tariff. You could:

1. Retaliate — Hit back with a 125% tariff on US goods. This tit-for-tat escalation is a trade war. It’s like two kids arguing, each yelling louder than the other. Eventually, everyone gets annoyed.

2. Negotiate — Sit down for a deal. Because the truth is, both sides have something to lose. If China cuts off rare minerals, the US tech industry suffers. If the US blocks electronics, China’s factories feel it. Cooperation, not conflict, usually works better — but politics makes that tricky.

Isn’t Everything (mostly) Made in China Anyway?

Ever flipped over your phone case or clothes and saw “Made in China”? Not a coincidence. China manufactures a huge share of the world’s goods — efficiently and cheaply. Even US companies rely heavily on Chinese factories.

So, when tariffs enter the picture, prices rise for things you didn’t even realize were foreign made. And while some viral TikToks might exaggerate, they’re not entirely wrong — China plays a massive role in global production, even for American brands.

So… What Now?

The next time you hear about tariffs or trade wars, ask yourself: If prices go up, will I change what I buy? There are rumours floating around that iPhone could cost a price of a car if the trade tension escalate. What would I do now? Well, for me, if I fear that happening (although it can turn out to be untrue), I will just upgrade to a new iPhone, trying to save my future-self of having to pay a very expensive iPhone.

Additionally, a smart financial plan should include looking ahead. Saving and investing today can act as a buffer against tariffs and future price increases, bolstering your financial security in an uncertain future.

Even investing in relatively stable ASNB funds can help you grow your money steadily over time. While the returns might not always outpace very high inflation, they generally aim to provide returns that are better than simply holding cash, thus helping to preserve and potentially increase your purchasing power in the face of price increases.