The turmoil around tariffs caused by the recent executive orders put in place by the current American president may have left you wondering about what they are, what they’re used for and the actual impact they may have on local and global economies.
If that is the case, then you’re in right place! In this article you will find what you need to know about tariffs and how they may affect you.
What is a tariff?
Simply put, tariffs are taxes on imported goods.
For example, if country A imports steel from country B, and there is 10% tariff, that means that country A will add 10% to the final price of steel when it crosses the border coming in from country B.
In other words, they are duties paid by the importer. They can be of different types:
- Specific tariffs – fixed fee per unit, for example 1000€ per ton of steel
- Ad valorem tariffs – percentage of the value, for example a 10% tariff on the price of steel (so if 1000€ of steel are imported, the final price would be 1100€)
- Tariff-rate quotas – lower tariffs up to a threshold, then higher tariffs beyond it (which allows a pre-determined amount of goods to be imported at lower tariff rates).
What are tariffs used for?
As one of the most widely known tools of protectionist policies, tariffs are applied for multiple reasons:
- Raising government revenue – tariffs make goods more expensive for the importer, and that price increase is collected by the state
- Protection of domestic industries – tariffs are applied to raise the price of imported goods and discourage their consumption, therefore promoting instead local businesses, by making them comparably more attractive for the consumer
- Strategic reasons – tariffs may be applied to coerce or pressure other countries with a pre-defined objective, such as changes in policies or forcing geopolitical decisions.
American President Donald Trump announces reciprocal tariffs on numerous countries. Rose Garden, White House on April 2, 2025.
What is the impact of tariffs?
Tariffs can have various effects on multiple levels.
Domestically, tariffs, by making domestic businesses more attractive, can protect local jobs in the short term and boost productivity. They can also promote the development of strategic sectors, as they are often applied to specific areas to allow infant businesses to grow. On the other hand, due to the protection against foreign competition, tariffs can lead to higher prices to the consumer, less choice in the market or even less research, innovation and efficiency by local businesses.
Globally, their effects are mostly harmful. They lead to trade tensions, less cooperation or even disruptions in supply chains which can ultimately lead to reduced international trade, inefficiencies in the global markets and, in extreme cases, economic slowdown or even recessions – this often referred to as a trade war.
The Take-Away
The common (or even almost unanimous) opinion among economists is that tariffs are inefficient, detrimental and overall self-defeating. The short-term domestic benefits are vastly outweighed by the decline in global cooperation or foreign competition. Although they may be appropriate in certain small scale scenarios, in globalized economies such as our own, they often bring more harm than good, especially when applied recklessly.
Ultimately, the weight of tariffs falls on the shoulders of the importers, the exporters as well as the consumers.
And you – what is your opinion on tariffs? Do you see them as an effective tool to boost small and local businesses or as sand in the gears of global trade and cooperation?
Let us know down below!
Tags: article, economy, current affairs, tariffs, tariffs explained, trump tariffs
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