If you’re like me — a pretty average American — your news feed is filled with tariff talk and the ramifications of the resulting trade war. But in all the noise, it’s easy to get too complicated — or too simple — an explanation of exactly how tariffs work and how they will affect you.
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So I did what most of us do these days: I ChatGPT’d it — Googling it is so 2024.
Next, learn how to protect your wealth from tariffs.
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ChatGPT, Explain Tariffs to Me
I asked Chat GPT to explain tariffs to me like I was 12 years old. Here’s its exact response:
“Imagine you live in a town where everyone loves candy. Your town makes some pretty good candy, but other towns also make candy — and sometimes their candy is cheaper.
“Now, your town’s mayor is worried that if everyone keeps buying the cheaper candy from the other towns, the candy makers in your town might not sell enough and could even go out of business. That would be bad for your town.
“So, the mayor decides: ‘If someone buys candy from another town, they have to pay an extra fee.’ That extra fee is called a tariff. It’s like a special tax just for stuff that comes from somewhere else.
“Because of the tariff, the candy from other towns becomes more expensive. That way, the candy made in your own town doesn’t seem so expensive anymore, and people are more likely to buy local candy.”
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Tariffs in the Real World
Clear enough so far! ChatGPT continued:
“In real life:
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“Countries do this with products like clothes, cars, food and electronics — not just candy.
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They use tariffs to protect their own businesses and workers from too much competition.
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Sometimes, countries also use tariffs to send a message like, ‘Hey, we think you’re being unfair, so we’re going to make your stuff cost more here!’
“Important thing to know:
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“Tariffs can help local businesses, but they can also make things more expensive for regular people who want to buy stuff.
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If tariffs get too big, countries can start arguing and even cause something called a trade war (which is just countries fighting about buying and selling stuff).”
The rather patronizing use of candy aside, I thought that was a pretty clear explanation. So I decided to see if Chat — we’re now on a first name basis — could shed some light on how tariffs might affect me personally.
How Will Tariffs Affect Me?
So, I asked: “Please tell me how very high tariffs, such as the current 145% tariffs on most Chinese goods entering America, could affect a lower- to middle-class American consumer?”
ChatGPT answered, “Okay, so let’s say the U.S. government puts a really high tariff — like 145% — on stuff from China. That means if something from China costs $100, when it gets to the U.S., it now costs $245 (the original $100 + $145 extra from the tariff).
“Here’s how that affects regular people, especially lower- to middle-class Americans:
“1. Things You Buy Could Get Way More Expensive
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“A lot of everyday stuff — like toys, clothes, sneakers, phones, computers, tools — is made in China.
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If those things cost more to bring into the U.S., stores have to raise their prices so they don’t lose money.
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So now, a backpack that used to cost $30 might cost $50 or $60.
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If you don’t have a lot of extra money, buying the things you need becomes harder.
“2. Fewer Choices
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“Some stores might just stop selling certain things from China because they’re too expensive.
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That means you might not find as many cheaper options anymore.
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So even if you’re looking for a budget phone or affordable shoes, you might be stuck with only expensive brands.
“3. Inflation Can Get Worse
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“Inflation means that prices go up on lots of things over time.
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If tariffs make lots of stuff more expensive all at once, it can make inflation worse — which means your money doesn’t stretch as far.
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For people already trying to pay for food, rent, gas and bills, that can be a big problem.
“4. Jobs Could Be Affected Too
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“Some U.S. businesses depend on Chinese parts to build things (like electronics or cars).
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If those parts cost more, making stuff in America costs more, too.
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Companies might hire fewer workers, freeze pay raises, or even let people go to save money.”
“In Short:
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“You pay more for the same stuff.
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You have fewer cheap options.
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Your money doesn’t buy as much.
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Some people might lose jobs or get paid less.
“Now, the government might say, ‘We’re doing this to protect American companies and jobs long-term!’ — and sometimes it can help certain businesses. But for everyday people, especially those who don’t have a lot of extra money, it usually feels like life just got more expensive and harder.”
Potential Long-Term Effects
All of this takes time, of course. And analysts told Bloomberg that even if the tariffs were removed immediately, higher prices and empty shelves could be felt this summer.
That’s because many companies are cancelling orders because they can’t afford the tariffs. For instance, in the port of Los Angeles, the main U.S. port for Chinese goods, shipments are expected to be a third lower for the week of May 4.
Additionally, according to container tracking service Vizion, 20-foot containers from China to the U.S. were down by 45% compared to a year ago, as reported by Yahoo Finance.
So whether you’re a 12-year-old or their parent, expect back-to-school time to be more difficult this year.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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Sources
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YouTube, Bloomberg Podcasts, “Trump Tariffs Set to Shock Supply Chains Within Weeks.”
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Yahoo Finance, “Trump tariffs live updates: Trump says trade deals are coming, but he’s not planning to speak with Xi.”
This article originally appeared on GOBankingRates.com: I Asked ChatGPT To Explain Tariffs Like I’m 12 — Here’s What It Said
