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A tariff is a type of tax imposed on goods when they cross national borders, often used by governments against trading partners they disagree with or to protect local industries.
Tariffs slapped on foreign imports make them more expensive, ostensibly providing a price advantage to locally made goods, while also raising revenues for governments.
But economists widely consider them an inefficient tool that typically leaves consumers and taxpayers in the country imposing them bearing the brunt of higher costs.
If a car manufacturer imports parts that are used in its vehicles, for example, then tariffs on those goods will add to production costs and the final price consumers pay. The artificial increase in the price of imports can also theoretically lead to weaker domestic competition, and local industries that are less efficient and innovative.
Tariffs often can devolve into a cycle of retaliation, or even a full-blown trade war, which was another feature of Donald Trump’s first term in the White House.
There are often other considerations, such as geopolitics. For instance, the tariffs in Trump’s first term were ostensibly to punish China for what the US said were longstanding intellectual property theft and unfair trade practices. They also aimed to constrain a powerful rival and rebalance a lopsided trade deficit. But they failed to boost US jobs in protected industries and harmed jobs in other sectors, according to the National Bureau of Economic Research.
Exporting countries targeted by tariffs can lose out if buyers shy away from the resultant higher prices. Economists say as much as a full percentage point could be sliced from Chinese GDP growth, depending on the extent of US tariffs. But that can be mitigated if it can sell its products elsewhere, or as China has been doing, start moving part of its supply chains offshore.