What is a tariff? Three ways Trump's tariff on Mexico and Canada would impact Michigan

DETROIT (FOX 2) - With President Donald Trump's planned tariffs tabled for at least a month, Michigan could take a deadly financial hit in different ways.

The tariffs proposed by Trump will impact the automotive and farming sectors of Michigan but it's also a growing concern for leaders in the state.

The backstory:

President Donald Trump has said that he will delay tariffs on Mexican imports for at least a month as the country south of the U.S. has said they will reinforce the border with 10,000 members of the National Guard immediately.

That announcement came on Monday. A few hours later, Canadian Prime Minister Justin Trudeau said the tariffs were postponed for 30 days as well.

Trump declared an economic emergency in order to place duties of 10% on all imports from China and 25% on imports from Mexico and Canada. The tariffs were to go into place on Tuesday.

Mexico and Canada ordered retaliatory tariffs, though Mexico is holding off on theirs for the moment as security and trade talks continue between the two countries.

The Ministry of Commerce in China said it would file a lawsuit with the World Trade Organization for the "wrongful practices of the U.S." and take measures to safeguard its rights and interests.

Trump posted on social media that he spoke Monday morning with Canadian Prime Minister Justin Trudeau and would "be speaking to him again at 3:00 P.M."

Trump has promised more import taxes to come.

What is a tariff?

Big picture view:

Tariffs are taxes imposed on imported goods that are paid by the importer. The purpose of a tariff is to raise the price of imported goods and services to discourage consumption and get people to purchase more local products to stimulate the nation's economy.  

The idea is to encourage more local production so that imported goods can be replaced by domestic products, raising revenue for the government. 

According to a report featured in the Journal of Economic Perspectives, it is common for U.S. presidents to introduce protectionist measures — like heavy tariffs — early on in their terms. 

In 2018, Trump imposed tariffs on $283 billion of US imports in 2018, with rates ranging between 10% and 50%. In response, several countries including China, Russia, Canada, Mexico and the EU all filed cases against the U.S. with the World Trade Organization. Many of those countries also retaliated with tariffs of their own.

How will Michigan be affected by new tariffs?

Michigan's auto industry, farmers, and the state's budget surplus could all take a financial hit.

Governor Gretchen Whitmer said last December that the auto industry is something she's very worried about.

"That's the nightmare scenario for all of us," Whitmer said in December, ahead of Trump taking office.

Dig deeper:

For the auto industry, the federal government will impose a tax on every auto part that comes in to the U.S. from Canada or Mexico. Those parts wind up on the assembly line and, as the part goes up, so does the cost of the car.

Once the vehicle is complete, the cars go on the lot and it's going to lead to sticker shock. As buyers turn away, that means fewer sales and, eventually, lower profits.

Whitmer argues there is no upside to this.

"It will make it even more difficult for our auto industry because the cars that we buy which are Michigan made are back and forth from all over parts of North America and China. We've got to be mindful of that," Whitmer said.

Michigan farmers are already worried about losing migrant farmworkers under the President's aggressive deportation round-up . The tariffs could impact the price of everything at the store, according to Chuck Lippstreau from Michigan's Agri-Business Association.

"Tariffs on agriculture and products and food will ultimately lead to price increases. That is a concern that every Michigan family should be aware of," Lippstreau said.

Farmers worry that will lead to less food to sell, meaning lower sales and profits.

"That does hurt the farmers' opportunity to be successful and grow their economy long term," Lippstreau said.

The third potential loser in all this are Michigan citizens. Fewer dollars flowing into state coffers means fewer dollars for state services and programs.

Whitmer has already indicated that her new budget could be reduced and the state's hefty surplus may evaporate.

Trump has argued that there may or may not be pain for Americans but, in the end, says it will "be all worth the price that must be paid".

MichiganDonald J. TrumpEconomy