Lets get straight to the point. A tariff is somewhat similar to an import tax. Basically, additional money that is charged for buying a good from another country.

Better explained through an example: Random country A has imposed a 25% tariff on country B. What this means is that if some company that produces phones for example, buys a part costing $100 from country B, it’d pay the $100 to country B and additional $25 to the govt of country A.

Some people tend to have this misconception that the country which exports pays additional money to the govt. But no, its actually the importing company pays the tariff to its own govt.

Now you might’ve heard that tariffs lead to increase in prices and if you’re wondering how, then lets continue with the previous example.

Due to the tariffs the company who imports the goods obviously has to pay more. It doesn’t matter who they’re paying to, at the end of the day they still have to spend more. Say , before the tariff, they spend $100 on getting the part, then some additional money for manufacturing so production cost $150 and then sold it for $200 ( clearly a very imaginary scenario). But after the tariffs were imposed they spend $125 on getting the part, then additional charges which leads to production cost being $175. Now if they sell it for $200 their profit is gonna decrease by $25, which might not seem like a lot but even if the company sells say 1000 phones then their pre-tariff era profit of $50,000 would go down to $25,000.

Okay so you might say ‘I don’t care. That phone is still $200 for me”. Well….I have bad news. Companies don’t want to loose profit (obviously) so they’ll charge you more too. In order to make up for the money spent on tariffs they’d charge the customers extra. All of a sudden that $200 phone costs $225

So yea, ultimately the price falls onto the consumers. And the example I gave is just an imaginary scenario. In reality, manufacturing a phone means multiple parts bought from multiple different countries and hence more tariffs.

Now that you have a basic idea of what a tariff is, let’s talk about why everyone is talking about it.

Even if you were living under a rock, you’d know that the new US President is Donald Trump. And less than 5 months since he took office, he has implemented at least half a dozen tariffs. Now the whole thing is sort of complicated because he implemented some then he paused them and then implemented more and....well its just complicated. He’d initiated “Reciprocal tariffs” for over 150 countries (a whole new thing that I would perhaps explain in a different post) that, in a matter of days, were paused for all countries except for China for whom it seems to increase on a daily basis. To make it simple, as of now, almost every single country is facing a baseline 10% tariff from the US. Except for China, who has a 145% percent tariff. Basically any good that comes from China would now be more than twice as expensive as it was before.

So why implement tariffs if the consumers ultimately suffer?

Well, the US president once said, quote “Tariffs is the most beautiful world to me in the dictionary”. He believes tariffs are absolutely necessary because “the world is ripping off the US”. Why? Because well, US has a trade deficit with most countries. Basically US imports more than they export. Trump believes its a bad thing and everything should be MADE IN AMERICA like "Stop buying from other countries. Stop giving them money". To sum it up, the approach is tariffs=more price=people buy US made goods=US doesn’t buy from other countries=No trade deficit.

And on paper, that seems like it would work. Except there are drawbacks.

1.Consumer prices

As mentioned before tariffs mean higher import cost which ultimately is passed on to the consumers leading to inflation.

2. Countries will retaliate

Other countries aren’t just gonna sit back and do nothing. Tariffs mean that their goods become expensive which lowers the demand and hence they make less profit. So in return, they’d hit back with their own tariffs too. As of now, China has already hit the US with 125% as retaliation to the 145% tariff the US set on China.

3. Disruptions in the supply chain

Supply chain basically means I’ll sell you a raw material and you’ll make a finished product out of it. Implementing tariffs mean additional cost on all the raw material. Take the automobile industry for example, basic stuff like gears, shafts etc they’re imported, each from a different country, which means tariffs on them.

And we’re already seeing the impact of this. In America protests have erupted across 50 states (yea the whole country), stock market has crashed and the current scenario is literally being called a TRADE WAR across the globe.