Michelle Thompson
During Donald Trump’s first term, tariffs were introduced as a way to penalize China for alleged intellectual property theft and unfair trade practices, according to U.S. claims.
Fodder for protectionism, protracted trade wars, and the ‘most beautiful word’ in Donald Trump’s vocabulary – how do tariffs actually work?
A tariff is a tax applied to goods crossing international borders, often used to challenge trading partners or safeguard domestic industries.
By making imports more costly, tariffs aim to give local products a price advantage while increasing government revenue. However, economists view them as inefficient, as they often lead to higher costs for consumers and taxpayers in the imposing country.
For example, if a carmaker imports parts, tariffs raise production costs, inflating final prices. This price hike can weaken domestic competition and stifle innovation, creating less efficient industries. Tariffs may also trigger retaliation or escalate into trade wars, such as during Donald Trump’s first term as U.S. president.
Geopolitical motives often play a role. Trump’s tariffs sought to penalize China for alleged intellectual property theft and unfair trade, curb a rising rival, and address a trade imbalance. Yet, these measures failed to boost U.S. jobs in protected industries and hurt others, according to the National Bureau of Economic Research.
Exporting nations targeted by tariffs can suffer reduced demand due to higher prices. For instance, U.S. tariffs could reduce China’s GDP growth by up to 1%, although this impact can be offset by selling elsewhere or moving supply chains offshore, a strategy China has adopted.
