As parents, we want to raise financially savvy children who understand global issues like tariffs and trade wars. These economic concepts might sound complicated, but they have a big impact on our daily lives—from the prices we pay at the store to job opportunities available for families. Here’s how you can explain tariffs to your child and help them understand the impact on businesses, families, and the economy, especially in the context of U.S.-Canada trade relations and important agreements like NAFTA and USMCA.
Start with a Simple Analogy to Explain Tariffs
Children grasp concepts better when they relate them to something familiar.
Ask your child to imagine they and their friend trade lunches at school. One day, a teacher charges a “trade fee” every time they swap. Suddenly, your child's friend must give up an extra cookie to trade a sandwich. Eventually, the friend stops trading because it's too expensive.
This is similar to what happens with tariffs. When a country places tariffs (extra costs) on imports from another country, the price of goods rises, making trade less attractive.
How Tariffs Work (And Why They Make Things Expensive)
Tariffs act as extra taxes on imported goods. Imagine a U.S. toy store that buys stuffed animals from Canada. Normally, the store buys each toy for $10. But if the U.S. adds a 25% tariff, the store must now pay $12.50 per toy.
Since the store doesn’t want to lose money, they raise the price for customers. Instead of selling the toy for $15, they now sell it for $18. As a result, fewer people buy the toy, meaning lower sales for the store and the Canadian manufacturer. This can lead to job losses and business closures, as companies struggle to cope with the higher costs.
This pattern repeats across industries. If the U.S. places tariffs on Canadian lumber, dairy, or steel, fewer American businesses will buy these products, hurting Canadian farmers, factory workers, and small business owners.
NAFTA and USMCA: How Trade Works Between the U.S. and Canada
For years, Canada, the U.S., and Mexico had a special agreement called NAFTA (North American Free Trade Agreement). NAFTA was designed to make trade easier by removing most tariffs, so businesses could buy and sell goods across borders without extra costs.
In 2020, NAFTA was replaced by USMCA (United States-Mexico-Canada Agreement). USMCA kept many of the same rules but added new regulations to protect workers and industries in each country. While USMCA helps keep trade fair, disagreements still happen—especially when one country decides to impose tariffs on certain goods.
The U.S.-Canada Tariff History: What Happens When Countries Place Tariffs on Each Other
Even though NAFTA and USMCA help reduce tariffs, the U.S. and Canada have still had trade disputes. Here are some key examples:
2018: Steel and Aluminum Tariffs
In 2018, the U.S. placed tariffs on Canadian steel and aluminum, claiming it needed to protect its own industries. In retaliation, Canada imposed tariffs on various American goods, such as ketchup, dish soap, and playing cards. These trade wars made everyday items more expensive for people in both countries.
Canadian Dairy and the "Ice Cream Rule"
The U.S. has long disagreed with Canada’s supply management system for dairy, which limits how much foreign milk, cheese, and yogurt can be sold in Canada to protect Canadian dairy farmers. Canadian dairy products are free of artificial growth hormones whereas US products are not. In the USMCA agreement, Canada was forced to allow more American dairy products, which the US could not guarantee would not contain artificial growth hormones, into the country, which caused tension between the two nations.
2025: The New 25% Tariff
Despite USMCA, the U.S. announced a new 25% tariff on some Canadian goods, starting February 1, 2025. This means certain Canadian products sold in the U.S. will become more expensive. This will lower the demand for Canadian products and impact Canadian businesses. If Canada responds with placing tariffs on US products that are imported into the country, prices for those products will rise in Canada as well, thus hurting Canadian consumers also.
How Tariffs Affect Life in Canada
Tariffs make products more expensive, which impacts consumers and businesses alike. If the U.S. raises tariffs on Canadian goods, businesses in Canada may see their sales drop because American companies will stop buying their products. For example, Canadian farmers, manufacturers, and small businesses that rely on U.S. customers could lose a significant part of their income.
When Canadian businesses are hurt by tariffs, they may need to lay off workers or even close down, leading to job losses across various industries. This impacts families, especially those who rely on these jobs to make ends meet. Less income means less spending, and this can have a ripple effect on local economies.
Why Tariffs Don’t Really Help Anyone
While some governments believe tariffs protect local industries, they often cause more harm than good.
- Higher Prices for Consumers – Tariffs increase business costs, so companies raise prices for their products and consumers need to pay higher prices. Families end up paying more for food, clothing, and household goods.
- Fewer Jobs – When businesses lose customers due to tariffs, they cut jobs or close down.
- Less Trade, Less Growth – When two countries keep increasing tariffs on each other, trade slows down. This weakens both economies instead of making them stronger.
- Small Business Struggles – Small businesses that rely on exports are often hit hardest. For example, a small Canadian maple syrup company will see a drop in sales if the U.S. imposes tariffs on Canadian syrup.
What Can We Do?
Unfortunately, we are in a very politicized world and tariffs are still used as a political tool, Businesses and consumers must learn how to adapt to changes in trade policies.
At Explorer Hop, we teach kids about global trade and how it impacts the future of business, part of the class is simulating tariffs and other political policies that impact the economy so students learn first hand the impact of these actions.
Encourage your child to think about:
- Where the products they love come from, it's a good idea to look on the box of the product.
- How to help small businesses in the community who are disproportionately impacted by tarrifs.
- What they would do if they were a business owner facing tariffs.
Understanding the global economy is crucial for kids today, as they may one day be entrepreneurs making decisions about how to navigate trade wars and tariffs.