Understanding The Impact Tariffs Have On Your Finances

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, Grab your spot here by going to moneymachinelive.com and I'll see you in the free training. I don't know if you feel the same way, but do you feel like things are a bit more expensive these days and maybe they are talking about all of it? You feel like maybe your money isn't stretching like it once was and wondering, you know, what's going on. The grocery bill's up, gas bill's up. Even Amazon orders are creeping up. Well, this episode's for you because I think that there's some things that work. Yes, we had inflation, but I think that there's also some other things that we're hearing talk about that word tariffs. And I really wasn't going to do anything on the tariffs because I figured that they were going to move through it. But I feel pulled to do this because I think there's a lot of information out there that isn't correct. I think that there's some misinformation out there to create fear, to create panic, to create ratings for the media. So I want to give it to you. I want you to understand it without bias. And right now, tariffs, they're paused. So we have this break, but the break is temporary and we don't know when they're going to come back, really. And when they come back, how they might reshape our living businesses, our ability to build wealth and all those things. And I want to make sure that you have the right things to prepare yourself.

Your paycheck doesn't buy as much anymore. Your groceries are higher, that new phone $200 more than maybe it was last year. But here's what most people don't realize. Even though tariffs are temporarily paused, they're likely to come back. And when they do, it'll hit you right where it hurts in the wallet. And the fact of the matter is, I think that some businesses are anticipating them coming back and they've already started to increase prices or try to position and do some things to protect themselves from tariff increases and the cost of tariffs. So in this episode, I want to break down what tariffs are in plain English, how they might quietly drive up costs, how they might impact you, what you can do now before there might be a price surge. And, and the things that you need to have in place to build wealth, to have financial freedom. No matter what's happening, tariffs are not something that are new. They've been around for centuries, okay? And it's something that we just need to understand. And they ebb and flow and they change for a lot of reasons. So let's start off with the fundamentals. What the heck is a tariff really? The technical truth is that a tariff is simply a tax on imported goods. You know, we are going to import something from another country. A country wants to sell something in the US and in order to have the right to sell something in the U.S. they say that you got to pay a fee called the tariff. It's like, it's like a covered charge for products from other countries. But instead, here's the thing. When you go to a, when you go to a club and you pay a cover charge, you pay the COVID charge to get in, okay? The, in the, the exporter, let's say it's from Germany or China or Europe, they are, they are not the ones that are actually paying the tariff. It's the importer. So let's say that it's Target or Walmart or Apple that's importing something from another country. In order to use the goods from that other country, they have to pay the tax, the tariff. So what ends up happening is if you look at it, you have the exporter, the other country, the importer, which is us in the US and then the consumer. There's three parties involved. The tariff is charged to the importer, the middle person, the person in the US but all in all, what ends up happening is that it gets pushed in other places because the importer doesn't carry the full burden historically. So. But let's just look more deeply as to how tariffs work. Let's say your favorite headphones are made overseas. If the government decides to add a 25% tariff on them because they're being imported from overseas, the company that is importing them isn't just going to eat the 25%. They can't. Their margins will not support it. So what are they going to do? They're going to do one of. One of a couple of things. They're going to. They're going to raise the price. Potentially. The easy thing would be to raise the price the full 25%. Their whole. And who bears the Burden. We do. Okay. Now that's, I think, what a lot of people think is going to happen, but I think that there is some middle ground that's going to happen. And I think that we can anticipate that the importer isn't going to be able to pass on 100% of a 25% tariff to the consumer without it impacting their sales in a dramatic way. And they know that. So they know that they may have to erode their margins a little bit, meaning that they may not pass the full 25% on. The other thing that might happen is that they go to the foreign country where they're importing the goods from and say, we can't, we can't import from your country because of the fact that we're going to have to pay a 25% tariff, but if you pick up a portion of it, then we can continue to do the importing. And so what I think is going to happen, and this is speculation, and I'm being upfront about it, is that they will come to the table and have a negotiation if there is a permanent tariff in place where it's going to be borne by three parties, partly by the importer, partly by the exporter, and partly by the consumer. Either way, though, what's going, what that results in is an erosion of the margins of at the import level and an increase in the costs of the consumer level. Okay, so it is what it is. This is the world we're in. We've had tariffs in the past. They've created trade negotiations, all kinds of things. And you got got to ask yourself, well, why do governments use tariffs? And prior to 1913, that's pretty much all we had. We didn't have an individual income tax. All our tax revenues for the most part came from taxing imports, you know, having tariffs in place. One of the reasons that governments use this is to protect jobs and factories on, on the home front. So here's what I mean by this. In the US if overseas can sell their stuff here for cheap, then what ends up happening is that Americans start to lose their jobs. And we've seen one of the things that has happened over the, over the decades is that we have, we have moved away from being a manufacturer, a producer country to a consumer country. So we're importing a lot of stuff from other countries, and those other countries are able to make them cheaper. Now, you know, are they the same quality? That's a whole different discussion. But by forcing a tariff on imports coming from, from another country, Tariffs are a way to try and even the playing field. So think of it like this. You're putting ankle weights on the competition. The idea is this, is that if imported goods are more expensive, the tendency was, would be that I'm going to look for goods that are American made, therefore not subject to tariffs, and therefore hopefully lower cost absent the tariffs. And by virtue of that, you help US companies and you help us jobs and you keep them here. But truth be told, theoretically it sounds great, but it doesn't always work that way. And I think that this is something that we're going to have to watch out for. And in the end, I'm going to tell you some things to do to prepare for it because I don't think that anyone knows right now there's speculation of our tariffs going to create inflation is if it doesn't create, if it doesn't create inflation, is it, is it transitory or is it permanent? Is it a one time thing? If you listen to different economists, they're all theorizing what might happen. Okay? Another reason that tariffs come into place is national security reasons. Think about critical stuff like semiconductors or medicine that if we are reliant on overseas and supply dries up and we don't have control of it, then we become beholden to those countries. So now all of a sudden by trying to get more of that manufacturing back here domestically, we start to protect ourselves from the leverage that other countries might have with respect to some of these key elements, including tech, steel, semiconductors, medicine, all those things that come place. Now what happens is that hopefully the anticipation is that we become less dependent on foreign countries for our key components of survival. Okay? The third reason I think that they do this is literally to pressure other countries. It's basically saying play fair and we'll make it more. If you don't play fair, we'll make it more expensive for your products to be sold here. We'll make it hard for you. It's, it's a way to negotiate, it's a way to get people to the table. And I think by and large the way this is coming down, and I'm not making a statement as to, you know, Democrat, Republican, that's not the point. I think that the way this is being done is to create.

Leverage and get people to the table to say, hey, we need to have a conversation and we need to fix the trade deficit and the, the way the un, the unbalanced trade that's going on now, we can debate all day long whether this is the Right way to do it or not. But I can say that I truly believe that we do need to do something about the, the trade imbalance because we can't keep going into, into deficit spending. We can't keep doing that long term. Now, whether this is the right way to correct it, that's. That remains to be seen. But one of the things that I think is going on right now is that this is a negotiating tactic. This is a pressure tactic that's going on. And in the meantime, we're in the middle of it. And in the meantime, there's going to be some uncertainty. In the meantime, there's going to be some pain. Okay. The other side of these tariffs is the last piece is actually for revenue. Technically, it raises money for the government. And so that's the idea. Now that's great.

And we can talk about the governments all day long. But what about you? What about me? What about us? We live each day. We go to the stores, we go to the gas pumps.

We're trying to live our life. So I get this global trade, but let's just talk about the family budget, because the tariffs, they're not going to stay in the warehouse. They're going to show up in the shopping cart. Tariffs, they don't feel like a tax per se, but they are. They're just hidden in plain sight. Okay. Because we see a product and we see a price, we don't necessarily know what went into that price, but if there's costs in there from production, from distribution, from logistics, from shipping to tariffs, it's going to be caught up in there. And so when we start to look at the impacts of it, real life impacts, I think that there's a potential that you're going to see impacts in our grocery bills because we import from other countries, things like coffee and avocados and produce and, and things like that. Well, if those are going to be covered with tariffs, it's going to lead to more costly produce coming here, which means that somehow the prices will go up. Will it be dollar for dollar? Maybe, maybe not. Okay. But I'm still looking at it saying prices still go up. All right, clothing and shoes, 65 to 87% price hike. Hikes have hit in previous tariff rounds for clothing and shoes that are being imported. And so this has happened in the past, it could happen again now. Watch what happens here though, because now all of a sudden, we as a buying public, as a consumer start to discern more and say, huh, I don't want that. I don't need that. I'm going to look at necessities, I'm going to look at needs, I'm going to look at what I want and be more disciplined and more discerning about how I spend my dollars, which then brings, potentially bring spending down, which affects businesses, which affects, I mean there's a parade of things because if I'm buying less because it's more expensive and I'm being more discerning, then company profits go down. If company profits go down, all of a sudden the, the value of the stock goes down. If company profits are down, we might lay off people because we don't need jobs and we start doing cost cutting. All those things happen. And I think they're going to happen if we're not careful or this is lasts for a long period of time. You got grocery bills, you've got clothing and shoes, electronics where they're shipping parts overseas now becomes more expensive cars. All of it is going to somehow end up in some way in some percentage in our pocketbook. Okay, so.

This is not something that is between the governments. This is something that I do think is going to hit in our pocketbooks and depending on your kind of consumer habits, your buying habits will determine how much it hits you and which, you know, whether you're buying stuff that is Chinese based or Europe based or Canada based will, will hit us. And, and I think one of the problems with that is the, the long term effect is, is that it creates uncertainty. It creates uncertainty in your life, it creates uncertainty in your finances, it creates uncertainty in the stock market. And we've seen a tremendous amount of volatility in the stock market.

In the, in the past month where we've had 2,000, 2,000 point swings, a thousand.

One thing that a stock market and investors absolutely do not like is uncertainty. And the more uncertainty we have around pricing, around profits, around future, all that stuff, the more tenuous they are about investing. Which means that it affects our retirement funds, it affects our 401ks, it affects a whole lot of things. There is a ripple effect of this that.

That can, can just impact us. And, and if you're 30 years old, maybe it doesn't.

Have you that worried, but if you're 60 years old, it could. Because imagine for a moment you're 60, 62, you're thinking of retiring and now you have a 30% correction in the market. All of a sudden the nest egg you had is 30% smaller. Then if it wasn't built correctly, if you didn't built the money machine correctly, then what do you do. Okay. And.

I'm being upfront, I'm being.

Very direct about this. I'm not saying whether I agree with it or I don't agree with it. I agree with the fact that we have to solve our deficit, debt problem and spending problem as a government. Is this the right way? Who knows? We'll see. Okay? I have no say in it, so it doesn't really matter. What I do have a say in is what you do with your personal dollars, your personal life. And what we can do, I think we control the controllables, you know, because if you look at what could be happening is that we get into what they've termed as a trade war. And we've been here before. But you think about it. Let's just look at it from a simple standpoint. The lemonade stand, okay? Imagine two kids are selling lemonade. One imports the lemons for a dollar. The other uses lemons that. That cost $2. Okay? Well, to help the local kid that gets local lemons for $2, the neighborhood, let's say the neighborhood calls it a lemon tax. And. And to the cheaper lemons that they're getting for a dollar. And so they. They add a tax to it. And now.

The imported lemons cost a dollar plus a dollar tariff. So all lemons cost $2, no matter where you get it from. But here's the catch. In the end, everyone pays more for the same lemonade. That's what tariffs will do.

And so I think it's really important to understand that. So here's the deal. Why is this happening now? Again, this is my own speculation, my own interpretation. And I am not a. I am not one that gets involved in the politics of it. I don't spend a lot. I don't watch the news. I don't do those kinds of things unless I think that it's going to impact the work that we do. Because I don't believe that we're getting the full story from no matter where you go. And I don't believe that it's unbiased. So I'm going to do my own research and come up with my own things. Here's what I think the bigger plan is, because I think it's easy to get frustrated and ask ourselves, why are they doing this? It's going to hurt me. It's going to hurt. I can't afford to live. Or it's affecting my investment portfolio. It's affecting my retirement. All those things. I think I said it already. One is, I think, to build leverage.

Many Countries have used tariffs to force another side, the person on the other side, the country on the other side, to change a behavior. It's a tug of war right now that we're in. And the rope that we're playing with is our wallet. Okay. The second reason that I think they do it is to rebuild local industries, to bring things back domestically to do that. Now the reality is that it's not going to happen quickly because we have to retool, we have to regroup, we have to get things in. But what tariffs can do is buy Americans time and American companies time to get back in the competition again and to compete effectively. But if we don't do that, if we don't take that time where it's pushing off the foreign countries by virtue of tariffs to tool up and do the right things, then we're just going to be left foot in the bill. But the idea is that it rebuilds local industries and brings in more jobs and more, more things. And then the last reason I think is this, frankly, sometimes it's just politics. They're campaign tools, they sound strong, they create, they can create short term pain, they can create leverage. It is pound in the chest, I think. Sometimes I don't know what's going on here because I'm not involved in it, but I do know that there's an economic impact of what's going on now. What's happening right now? Well, the current administration has paused most of the tariffs for 90 days. So there's this cooling off period that is hopefully allowing conversations to be had between the countries in an effort to come to a trade deal that is beneficial for both, but beneficial primarily for the US to rebalance the trade before tariffs come back in. And to the extent we're successful with doing that, some of these pause tariffs never come back in. Okay. But it's a temporary cooling off period. If they don't come to the table or they don't come to a deal or they don't come to the table in good faith, this is not a long term fix, they will come back in place. So businesses right now, they're, and this is where that uncertainty comes in is they're holding their breath, they're kind of wondering, well, what can we do? We're not going to make a decision because we don't know which path we're going. And that, that purgatory, if you will, is a, not a great place.

To be. And so CEOs behind the scenes are just pausing big decisions. They're waiting to see what happens next? They're waiting to see if, if some of these tariffs are going to go away, if they're going to become more long, long term, what's happening. And so, so they will wait, they will watch, they will strategize and they'll have multiple plans depending what happens, and then they'll execute quickly. That's what I think is going to happen.

Because we have tariffs that are all over the place. There's 10% baseline tariff on all imports to 145% on Chinese goods. But you get things like.

Retaliatory tariffs from these other countries. China responded the same way and slapped us with additional tariffs. And so I think it's important for us to know that this isn't a state of flux. It's not going to end quickly. And I think that we're going to see a slowing in our economic growth because of it. I think we're going to continue to see uncertainty and volatility in the market because of it. So what do you need to do to protect yourself? What do you need to do to prepare for this? I think that you, you can't change what's going to happen, but we can change what happens in our own economy. And the first thing is this is to get really clear on your spending your income and spending your budget, if you will, your, what I call a cash resource plan, and to rework it to know that you know what your needs are, you know what your wants are, you know the things that you can cancel are and that you can you start making those moves. To sit back and say, I'm going to be a bit more discerning with my spending dollar. I'm going to be a bit more frugal with it. I'm going to make sure that it's something I get value from. I'm going to make sure that I'm using it, and if not, I'm going to cancel it. I'm going to start putting that money to better work somewhere else. And so I think step one is to rework your plan and to track your spending. Step two, I think you need to shop smart. I think that when we pick things up on the shelf or we're buying things online is to be really careful and start to compare domestic sourced goods versus imported goods and look at the alternatives and look at what they are. And if in the end we find ourselves buying more domestic goods, in the end that's actually a good thing. But in the process, it may be painful. Okay, so number two is I think we need to shop smarter. Number three, there may be some things that we should be considering buying in bulk, non perishables. Some things that maybe we can buy and store before tariffs hit. I'm not telling you to go panic, buy toilet paper, I'm not telling you to go panic, buy bleach and things like that, that has happened in the past, but to just look at it and say, what do you use a lot of that's non perishable that might be subject to tariffs, and does it make sense to buy a little more so you have it stocked up.

For if tariffs hit? Now, it's a temporary fix because once tariffs hit and you run out of your stock, you're going to have to deal with that. All right, number four, man, if you do not have this dialed in, it, you have to get this dialed in for a lot of reasons why. But this is too. And that is your emergency fund. You have to have liquidity because if there's job losses, if there's higher cost of living, if there's anything like that, that liquidity is your oxygen. That is. I know people say, well, cash is trash. I don't want to have it. It's not about having cash, not earning as much as the investments earn it. The job of that cash, the job of an emergency fund or a peace of mind fund as I call it in my book, is to protect you and to protect your wealth. It's not to create wealth. So the tariffs, the tariffs can cause ripple effects, which could cause job cuts, which can cause inflation, which can cause slowdowns. And the only way to sustain yourself absent a large portfolio which will be impacted also, is to have liquidity. Liquidity equals peace of mind. Then, number five, invest with a strategy. I hear so many people, in fact, I walk my dogs in the afternoon. There's this one gal that keeps coming up and she goes, what do you think about this stock? What do you think about this stock? Now, I don't answer her now. She hasn't got the hint yet. What I think about a stock investment is meaningless absent a strategy, a plan, and a vision. So I might look at Nvidia and say, hey, it's a great stock or it's not a great stock. That doesn't matter. The question is, do you have a strategy for your investing and does that strategy fit the vision for your life and are you investing in alignment with that strategy? And everyone's strategy is different. Mine is different than yours. It's different than my son's. Okay, so we want to Invest with a strategy, more so than ever with a diversified portfolio of investments. We need to look at it and say, what's my exposure to domestic companies? How liquid is it? Do I have that emergency fund in place? Can I weather the volatility? How much of a mix do I have in domestic equities versus international equities? All those things. But by and large.

You must have a strategy, and that strategy will analyze all of it, and if not, we got to get one in place. All right? And that leads me to number six, I think, is as much as I don't like the news, I think that it's important for us to be up to date but not take it for whatever we hear, Research it, read about it, look at different perspectives. The only purpose of doing this is so you don't get blindsided. Follow the policy. Updates, not headlines. Okay? And see what's, what's happening. All right? And if you have questions and you're not sure about, well, what does this mean to me? Ask them, reach out, let me know. We'll. We'll kind of guide you and, and give you our thoughts on it and everything. Because like I said, I don't have all the answers, especially when it comes to politics and the government and what, what these politicians will do. But I have an understanding of economics and the finance and, and how money flows and all those things. Okay? And I've been through a number of these types of things, whether it's recessions, up and down, markets, corrections, all those things. And I've seen patterns, and those patterns will repeat. All right? So although tariffs might sound like something that only politicians, economists, need to worry about, I don't think so, because we're the ones that feel it. It's in our shopping cart, it's in our budget, it's in our life. We can't get away from it. And while we have this small window of a reprieve and a pause, I think it's time for us to take this small window and start to get prepared. It's not about being fearful. It's about having foresight. And if we don't, if we, if we don't need it, great, we're fine. It's like wearing the seatbelt. Just because you got home safely wearing the seatbelt doesn't mean you shouldn't have put it on. No, I want you to be prepared. Remember my job. I always look at my job in two categories. First is to build an unshakable foundation of safety first, then growth. So safety first, growth second so that's what we do. I don't need you to panic. You need a plan. You need a plan, and that's what we're trying to build here through this show. And the work that I do and each and every week is to build a plan and build your money machine. All right? I hope that this kind of shed some light on some things. I know that I don't have all the answers around what is going to happen and what could happen and how it, it, it moves forward because you're dealing with egos, you're dealing with politicians, you're dealing with hidden agendas and all kinds of things. But what I do know is that we're. We're along for the ride, and the more prepared we are, the more disciplined we are, the more we follow the money machine principles and the things that I teach, the better off you'll be in the long run. All right, I hope that this gives you a little peace of mind, gives you a perspective, and allows you to move on with the direction to make sure that you not only survive, but you're thriving, no matter what uncertainty has come to the marketplace. All right, if there's something I can do to help you out, please reach out. Please let me know. And if you have someone that needs to hear this message or someone that.

Would benefit from some of the work that we're doing, share this out. Let them know. All right? In the meantime, I hope to see you on your road to financial freedom. Until I do, always, always strive to live a life that always you. See you in the next one. Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building your money machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.