Explaining Tariffs to Your Kids: A Simple Guide

Navigating Changes in Family Finances Together

As President-elect Donald Trump plans to impose 25% tariffs on Canada and Mexico, your family is likely facing new financial uncertainties and you are explaining tariffs to your kids.

These tariffs—taxes on goods imported from other countries—are likely to increase the cost of everyday items and potentially trigger a trade war with retaliatory tariffs from Canada and Mexico.

For families, this means changes in purchasing power, job security, and long-term financial planning. Your kids may come home from school with questions from the schoolyard. Talking openly with your kids about these shifts can help them feel prepared and included. Here’s how to explain tariffs and their impact calmly and clearly.

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Explain Like I’m 5 (ELI5): Tariffs

• A tariff is like a tax. It makes things we buy from other countries cost more money.
• If things cost more, families and businesses might have less to spend on other things.
• Sometimes, countries argue about trade, and each side tries to make the other change their mind by making their goods more expensive.
• This can make it harder for businesses to keep jobs or for families to afford as much as they used to.
• We might need to think carefully about what we spend money on to make sure we’re okay.

Top Five Concerns

Questionable Rationale

Economists and trading partners doubt the justification for the tariffs, which appear politically motivated rather than based on clear economic benefits. This creates uncertainty and undermines trust in trade negotiations.

Risk of Retaliation

Trading partners like Canada and Mexico can’t assume the U.S. is bluffing and must respond swiftly to protect their economies. Retaliatory tariffs could escalate into a trade war, disrupting industries and supply chains.

Higher Consumer Prices

Tariffs typically raise the cost of imported goods, leading to increased prices for consumers in the U.S. and reduced purchasing power for families.

Threats to Jobs

Industries reliant on cross-border supply chains, such as manufacturing and agriculture, are at risk of layoffs and reduced competitiveness as costs rise. This will be one of the most sensitive areas of the topic when you need to explain tariffs to your kids: they may have anxiety that they may lose their family home.

Economic Uncertainty

Sudden policy shifts and rapid implementation (effective January 2025) give businesses little time to adapt, delaying investments and destabilizing markets. This uncertainty can slow economic growth for all affected nations.

There is also concern in each nation that political parties will use this issue as an opportunity to put their own party’s agendas ahead of the interests for their own country (rather than making a unified response to the US’s threat), which diminishes national morale and productivity in responding. Your kids may want to be reassured that your country is “together” facing these challenges.

Why Talk About Tariffs as a Family?

Explaining tariffs to your kids now allows your family to make proactive choices. For example:

• Vacations: Rising costs might affect travel plans.
• Big Purchases: Consider timing major expenses like home renovations or a new car.
• Budgeting: Higher prices on imported goods might mean adjusting your family’s spending habits.

“Children feel more secure when they understand the reasons behind changes in their daily lives. It teaches them resilience and problem-solving.” – Dr. Emily Harper, family counselor

Including your kids in these conversations can help them feel empowered.

Also see: How to explain the stock market to your child

How to Explain Your Kids Ways That Tariffs Impact Families

Here are the main ways tariffs could affect your household:

1. Higher Prices: A 25% tariff means imported goods like groceries, electronics, and cars may become more expensive.
2. Job Security: If businesses rely on imported materials, they might cut jobs or reduce hours to save money.
3. Local Businesses: Family-owned businesses that depend on international trade could face higher costs, affecting their ability to stay competitive.
4. Economic Uncertainty: Retaliatory tariffs from Canada and Mexico might disrupt industries, creating ripple effects throughout the economy.

“Trade wars don’t just affect businesses—they change the daily lives of families, making conversations about spending and priorities essential.” – Daniel Roy, economics educator

Also see: How to explain a budget to a child and How to Explain Inflation to Kids

History of Previous US-Canada Trade Disputes

Looking back at previous trade disputes between Canada and the US, we can get a sense of the impact that imposing tariffs may bring to families in both countries in 2025.

Unemployment

• Steel and Aluminum Tariffs (2018):
  • The U.S. imposed tariffs on Canadian steel and aluminum, leading to job losses in Canadian industries reliant on exports. In Ontario alone, over 1,000 jobs in steel production were reported at risk.
  • U.S. companies that relied on imported steel saw higher costs, resulting in layoffs or reduced hours for workers.
• Dairy Disputes Under NAFTA (1990s-Present):
  • Tariffs on dairy products between the U.S. and Canada created challenges for dairy farmers, especially in smaller farming communities, forcing some families to sell their farms or leave the industry.

Cost of Living Increases

• Retaliatory Tariffs (2018):
  • Canada’s retaliatory tariffs on U.S. goods (like ketchup, coffee, and yogurt) raised grocery prices for Canadian families by an estimated 2-3% during the dispute.
  • U.S. families faced higher costs for imported products, including cars and electronics, which were passed down to consumers from manufacturers.
• Energy Costs During NAFTA Renegotiations:
  • Uncertainty around NAFTA renegotiations (2017-2018) temporarily drove up energy costs as markets anticipated potential trade restrictions, directly affecting household utility bills.

Sacrifices from Overhauling NAFTA (2017-2019)

• CUSMA/USMCA Implementation Costs:
  • Canadian families indirectly absorbed an estimated $3.6 billion in administrative and regulatory costs to implement CUSMA policies.
  • American families in farming and manufacturing sectors experienced prolonged uncertainty, impacting farm loans and household budgets.
• Agriculture Impacts:
  • The renegotiation reduced Canadian dairy market protections, causing income drops for dairy farmers and requiring more subsidies to stabilize the industry, paid through taxes.
  • U.S. farmers faced delays in trade benefits due to extensive renegotiation periods, losing market share to international competitors like the EU.

Overhead Costs of Negotiating Trade Deals

• CUSMA Negotiation Costs:
  • The renegotiation process for CUSMA cost Canada and the U.S. millions of dollars in legal and administrative fees. These costs were funded by taxpayers, effectively diverting public resources that could have supported healthcare, education, or social programs.
• Delays in Ratification (2017-2020):
  • The long process created financial uncertainty for businesses, delaying investments and hiring. This slowdown trickled down to families, impacting wages and job security.

Long-Term Economic Strains

• 2018 Soybean Trade War with China:
  • Retaliatory tariffs by China on U.S. soybeans caused a $12 billion drop in soybean exports. This reduced income for American farming families, leading to farm closures and increased reliance on government aid.
  • Canadian agriculture saw indirect impacts as market shares shifted, increasing competition for family-owned farms.
• Auto Industry Uncertainty (2017-2020):
  • Tariffs on auto parts raised production costs, increasing car prices by an average of $3,000 per vehicle in North America. Families delayed car purchases or faced higher debt loads to afford vehicles.

Social and Emotional Costs

• Family-Owned Businesses:
  • Trade disputes forced some family-owned businesses in export-heavy industries to close or downsize, creating emotional stress and financial instability.
• Community Impacts:
  • Job losses led to decreased spending in local economies, reducing funding for schools and community programs and increasing strain on families in affected areas.

By learning from the past, families can better prepare for the potential fallout of new trade disputes, particularly those stemming from significant tariff changes like those announced for Canada and Mexico.

How Tariffs Impact Employers

How do tariffs affect businesses?

Tariffs increase the cost of imported goods, which many small businesses rely on for materials or products they sell. For example, a small business importing fabric for clothing might face higher costs, forcing them to raise prices or cut profits. This can make it harder to compete with larger companies that might absorb these costs more easily.

How do tariffs impact manufacturers?

Manufacturers often rely on imported materials as part of their supply chain—like steel, electronics, or raw ingredients. When tariffs raise the price of these materials, manufacturers either have to charge their customers more, reduce production, or find alternatives, which can disrupt operations.

What happens to businesses that sell parts across borders?

Indirect exporters—businesses that sell parts or materials used in products assembled and sold internationally—are hit hard. For example, a company in the U.S. selling auto parts to Canada may lose customers if Canadian manufacturers pay more due to retaliatory tariffs. This ripple effect can hurt both sides of the trade.

Why are business relationships affected?

Tariffs create uncertainty in pricing and supply chains, making it harder for businesses to plan and budget. Long-term business-to-business contracts may need renegotiation, and trust can erode if costs rise unexpectedly. Businesses might also look for new suppliers or customers outside the affected regions, disrupting existing partnerships.

How can small businesses and manufacturers adapt?

To cope with tariffs, businesses can explore alternative suppliers, focus on efficiency to reduce costs, or pass some of the costs onto customers. They might also advocate for policy changes through industry groups to minimize long-term damage to their operations.

When explaining tariffs to your kids, it’s important that they understand that these costs can cause someone to longer be able to reasonably afford these increases (or pass the cost-on to their customers) — it’s unavoidable once they’re in place.

Practical Steps for Families

1. Plan Ahead: Reevaluate big purchases or vacations for better timing.
2. Support Local: Consider buying from local businesses to help the community.
3. Teach Financial Literacy: Use this as an opportunity to explain budgeting and saving to your kids.
4. Stay Informed: Monitor how tariffs might impact the prices of key items your family buys.

By explaining tariffs to your children openly, by planning as a family, you can turn uncertainty into an opportunity to grow stronger together in the months ahead.

“Families who adapt together build resilience—not just to financial changes, but to life’s unexpected challenges.” – Sarah Kent, Economist

More Resources

• The Basics of Tariffs and Trade Barriers – Investopedia
• Trump’s proposed tariffs could drive up food prices, experts warn – FOX News
• Here’s why Trump thinks tariffs are good for the U.S. — and what the experts say – CBS News

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FAQ

What is a tariff?

A tariff is a tax that one country adds to the price of goods coming in from another country. It’s like adding an extra cost to products made somewhere else so people might choose to buy items made locally instead.

Who pays for a tariff in the end?

In the end, people buying the product often pay more. When businesses have to pay tariffs, they usually raise the price of the items to cover the cost, so families and shoppers feel it when they buy those products.

Why do countries use tariffs?

Countries use tariffs to encourage people to buy goods made locally, but they can also lead to trade arguments.

How does this affect what we buy?

Imported items like fruits, toys, or electronics could cost more, so families might buy less of them.

Will this change where my parents work?

Some jobs could be affected if businesses can’t afford to keep all their workers due to higher costs.

Can tariffs be good?

Sometimes tariffs help local businesses compete, but they can also hurt families by making everyday things more expensive.

How long will this last?

Trade wars can last months or years. It depends on how countries negotiate and whether they find solutions.