A tariff is an import tax imposed by a government. It is a simple idea and this newsletter may be the shortest I have written.
A tariff can be imposed on all products from a country, all products of a certain type from a country, or products produced by a country and imported via a specific company.
Tariffs are an additive tax on products. This increases the cost to the consumer. It is traditionally used to protect domestic producers. For example, Country A sells product G at a price 25% less than that of a domestically produced product G. If we add a 50% tariff against Country A then domestic prices for product G may now be 25% LESS than that of products from Country A. Domestic producer “wins”. Consumer still “loses” as they will pay more.
Since any country can impose a tariff, tariffs can be an economic weapon. Retaliatory tariffs are very common with both countries using the tariffs as weapons in an “economic war”. This can lead to a static situation where neither country “wins”. However, the consumer (you and I) still pays for the product and, with the tariff added, pays higher prices.
Retaliatory tariffs are considered to be one factor triggering the Great Depression.
Tariffs (retaliatory tariffs, in particular) can hurt producers as well as consumers. A tariff against a country or product, will cause their product to be less competitive and reduce their market. As a local example, tariffs imposed against US grain exports hurt grain producing farmers in the US as it reduces their market.
Money from tariffs go to the government treasuries but will be paid for by the consumer (you and I). Thus, tariffs are a form of internal tax for citizens of a country.
In all instances, a tariff will add to the cost and the consumer will pay for that cost with higher prices if they choose that product.
