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| Hodine Williams |
Consumers bear the brunt
The resulting effect of a tariff is that it raises the overall cost of the import. How will the rational businessperson react? Well, they will pass those increases on to the consumers. Higher prices can strain household budgets, thus reducing purchasing power which translates to fewer goods in the basket. For example, the tariffs on Chinese goods during the U.S.-China trade war led to higher prices for everything from smartphones to washing machines.
Businesses also face squeezed margins
We have been operating in a world where geographical borders are less of a hindrance to business. We no longer operate in silos and have been reliant on each other as we capitalize on our endowments. When tariffs are imposed, industries reliant on imported materials see sharp increases in production costs. Small businesses, in particular, may struggle to absorb these increases, leading to reduced competitiveness. The steel and aluminium tariffs imposed under s. 232 were a boon for domestic producers but a burden for manufacturers who rely on these materials.
While tariffs can provide a lifeline to struggling industries, they can also foster complacency. If certain industries are continuously protected, they may never have an incentive to increase in efficiency which may result in constant bailouts and support, potentially hindering long-term growth.
Retaliation and trade wars: Don’t expect others to not fight back
When the United States imposes tariffs, other countries often respond in kind. The U.S.-China trade war is a prime example, with both sides levying billions of dollars in tariffs. Canada recently retaliated in response to the United States’ 25 per cent tariffs, imposing similar rates on some $152 billion worth of goods; $30 billion in goods imported from the United States applicable to goods originating from the United States, (goods eligible to be marked as a good of the United States) in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (CUSMA Countries) Regulations. And plans to institute an additional $125 billion in the coming weeks.
China for instance must have learnt from their history with the billion and their imposing tariffs. Now one must think beyond whether China will retaliate and more along the lines of how devastating the “clap back” will be. In the last trade war between the two, China responded by cutting importation of U.S. agricultural produce including soy, pork, corn and beef. The fact is, China is a mega market for US agricultural produce and states like Wisconsin, Iowa and Nebraska rely heavily on agriculture exports. The trade war saw these states struggling and had to be kept afloat by an over $1 billion bailout by the Trump administration. Can they afford to do that again? Time will tell.
Recall that China is a member of BRICS (Brazil, Russia, India, China, and South Africa) and arguably this was a strategic move by them. China doesn’t even have to use tariffs; a simple directive and impressing of citizens to promote Chinese products and or regulatory challenges would do the job. If China retaliates, what that means is that there is an alternative market for Chinese products and also a market that China can source these same products from without harming its economy. What does this mean for the United States? Well, local commodity prices would plummet, resulting in a glut on the market and invariable costly bailouts as history has shown us. This tit-for-tat escalation is disruptive to global supply chains; it will harm farmers and create economic uncertainty. In the past, the fallout was felt not just in the United States and China but around the world, as businesses and consumers grappled with higher costs and disrupted trade flows.
Diplomatic strains
Using national security as a justification for tariffs can alienate allies. Moreover, when tariffs violate World Trade Organization rules, affected countries may file complaints, leading to protracted legal battles which further strain international relations. The United States’s use of s. 232 tariffs on steel and aluminium, for instance, drew sharp criticism from allies like Canada and the European Union, who argued that the measures were unjustified and counterproductive.
Cultural shift: How tariffs reshape consumer behaviour and attitudes
While the economic and political consequences of tariffs are often discussed, their cultural impact is less frequently examined. Yet, in an era defined by globalization and digital connectivity, tariffs have the potential to catalyze profound shifts in consumer behaviour and attitudes. In today’s hyper-connected world, consumers are more informed and empowered than ever before. With access to a plethora of news sources, social media platforms and online communities, they can quickly learn about trade policies, their motivations and their consequences. This newfound awareness can lead to a cultural shift, where consumers begin to associate tariffs not just with economic policy but with broader narratives of fairness, nationalism and even hostility.
Consider this, when a country imposes tariffs, it sends a message — intentional or not — that foreign goods are undesirable or even harmful. This message can resonate deeply with consumers, who may begin to view imported products through a lens of suspicion or resentment. Over time, this sentiment can evolve into a broader cultural resistance to foreign goods, driven by a desire to “support local” or “punish” the tariff-imposing country. For example, during the U.S.-China trade war, many American consumers actively sought alternatives to Chinese-made products, not just because of higher prices but also out of a sense of solidarity with domestic industries. Similarly, Chinese consumers boycotted American brands, viewing them as symbols of U.S. economic aggression.
This cultural shift can have lasting effects, even after tariffs are lifted. Once consumers develop a preference for domestic products or a bias against foreign ones, these attitudes can become ingrained.
Even if diplomatic negotiations lead to the withdrawal of tariffs, the cultural residue of those policies may persist. Consumers who have grown accustomed to boycotting foreign goods may continue to do so out of habit, principle or a lingering sense of distrust. This phenomenon is sometimes referred to as “consumer discrimination,” which can have deleterious effects on international trade relationships, undermining efforts to rebuild trust and co-operation.
Moreover, the digital age amplifies these cultural shifts. Social media platforms and online fora provide a space for consumers to share their views, organize boycotts, and amplify narratives about trade policies. A single viral post or hashtag can galvanize millions of people to change their buying behaviour, creating a ripple effect that extends far beyond the initial policy decision. For instance, the #BoycottMadeInChina movement gained traction on Twitter during the U.S.-China trade war, influencing consumer behaviour not just in the United States but in other countries as well. This digital activism underscores the power of cultural narratives in shaping economic outcomes.
The long-term implications of this cultural shift are significant. If tariffs lead to a sustained preference for domestic goods, they could reduce the diversity of products available in the market, limit consumer choice and stifle innovation. Additionally, the erosion of trust between nations could make future trade negotiations more difficult, as consumers and businesses on both sides may be reluctant to re-engage. In this way, tariffs do more than alter trade flows — they reshape the cultural and psychological landscape of global commerce.
Big question: Are tariffs worth It?
This is the billion-dollar question. We agree that tariffs can be a powerful tool to protect jobs, combat unfair trade practices and safeguard national security. However, they also carry significant risks, including higher costs for consumers, strained diplomatic relations and economic inefficiencies.
The challenge for policymakers is to strike a balance. When should tariffs be deployed and when should they be avoided? How should the United States protect its interests without alienating allies or harming its own economy? Should Canada and those other countries roll over and play dead or should they respond in like or worse manner? These are complex questions with no easy answers.
As the global economy continues to evolve, the role of tariffs will remain a contentious issue. Whether they are a necessary safeguard or a relic of a bygone era depends on how they are used — and whether their benefits outweigh their costs. In the end, the true impact of tariffs lies not in their imposition but in their consequences, both intended and unintended.
This is the second part of a two-part series. Part one: What’s all this talk about tariffs? Part one: The rising significance of tariffs.
Hodine Williams has over 20 years of experience in law, corporate governance and regulatory compliance across the legal, financial, hospitality and engineering sectors. A former prosecutor and expert in digital forensics, financial crimes and cyber law, he has advised corporations in Jamaica, Canada and the United Kingdom. Holding a master of laws in international business law from Osgoode Hall Law School, along with degrees in management and economics and law, Williams is also an educator, philanthropist and advocate for youth development and racialized communities. You can reach him at hodine.williams@gmail.com.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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