A woman researching how tariffs could impact her investments.
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Tariffs and taxes both generate government revenue but serve different purposes. Tariffs are fees on imported or exported goods, often used to influence trade by making foreign products less competitive. Taxes are financial charges on individuals or businesses to fund government activities. Knowing how each can affect the economy and your bottom line could help you prepare for different economic situations. A financial advisor can also work with you to help manage taxes and tariffs that could affect your portfolio.
Taxes are charges imposed by governments on individuals, businesses and transactions to generate revenue for public spending. They come in different forms, such as income taxes, sales taxes, property taxes and corporate taxes. For example, income taxes are based on individual earnings, while sales taxes apply to purchases of goods and services.
The revenue collected from taxes funds public goods and services like infrastructure, healthcare, education and law enforcement. These funds are essential for supporting government operations and maintaining services that benefit society.
Tariffs are fees imposed specifically on imported or, less often, exported goods. They are often applied at entry points at a country’s border. Tariffs are used primarily to regulate international trade by making foreign goods more expensive, thus providing a competitive edge to domestically produced products.
There are several types of tariffs. One variety, ad valorem tariffs, are calculated as a percentage of the value of the goods. Specific tariffs, another type, involve fixed charges per unit, such as a certain dollar amount per ton or per item.
Beyond protecting domestic production, tariffs can also serve broader economic strategies, such as retaliating against another country’s trade policies. Revenue from tariffs is often a secondary purpose compared to their role in influencing trade flows. The primary function often leans more towards shaping trade relationships and fostering local economic stability.
Tariffs have been an important part of U.S. economic history since the nation’s founding. In the 19th century, they served as a key source of federal revenue and were used to protect growing American industries from foreign competition. By the 20th century, tariffs became less common as international trade agreements took priority.
Tariffs gained renewed attention during Donald Trump’s first term as president, particularly during his trade conflict with China. Trump imposed tariffs on a broad range of Chinese imports to address trade imbalances and support American manufacturing.
Following his reelection in 2024, Trump plans to expand tariffs further. His goal is to pressure countries into fairer trade agreements and strengthen protections for U.S. industries that face foreign competition.
A woman researching whether tariffs generate tax revenue.
Tariffs and taxes are both used by governments to generate revenue, but they differ fundamentally in their purposes and applications. Here’s a broad overview of the key differences between tariffs and taxes:
Taxes are broadly applied to individuals, businesses and transactions. They include various forms such as income taxes, sales taxes, property taxes and corporate taxes. Tariffs narrowly target goods that cross international borders, whether being imported or exported.
Taxes are primarily aimed at raising revenue to fund public services and infrastructure. Funds collected through taxes help support sectors like healthcare, education and law enforcement.
Tariffs are mainly employed as a trade policy tool. They help regulate international trade by making foreign goods more expensive, protecting domestic industries from foreign competition.
Taxes directly affect domestic individuals and businesses by creating financial obligations that contribute to public expenditure. They influence household budgets and business operations within the country.
Tariffs impact international trade dynamics by increasing the cost of imported goods. This encourages consumers to favor domestically produced goods over foreign alternatives, thus altering consumer and producer behavior.
Taxes are a major, consistent source of government revenue used to maintain and expand public services and infrastructure.
Revenue from tariffs is often secondary to their regulatory role. Tariffs are used to protect national economic interests, manage trade imbalances or respond to international trade disputes, rather than as a primary source of income.
Tariffs can have a direct impact on consumers in the form of higher prices for goods. When tariffs are imposed on imported products, the additional cost is typically passed on to consumers. This means everyday items like electronics, food, fuel and clothing can become more expensive. Higher prices can reduce consumers’ purchasing power, making them spend more for the same quantity of goods.
Tariffs also can limit product availability. Import restrictions may reduce the variety of goods in the market, potentially forcing consumers to settle for more expensive or lower-quality domestic alternatives.
Over time, these effects can lead to increased overall living costs, especially for lower-income households that spend a higher portion of their budget on consumer goods. Therefore, while tariffs are intended to protect domestic industries, they can also create economic burdens for consumers.
A woman researching how tariffs could hurt consumers.
Taxes and tariffs both produce revenue for governments, but they serve different functions. Taxes primarily fund public services and infrastructure, affecting individuals and businesses directly in the form of increased costs. Tariffs, on the other hand, shape international trade dynamics and protect domestic industries, often resulting in higher consumer prices.
A financial advisor can help adjust your financial plan based on the impact that taxes and tariffs could have on your investments and cash flow. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to know how much you could owe in taxes or receive as a refund, SmartAsset’s federal income tax calculator can give you an estimate.
