“Tariff” has become a global buzzword. When the US President ignited a worldwide tariff war, countries began to respond — some reflected, others retaliated, and many issued sharp warnings to the world’s most powerful nation. Now, China has hit back, warning of strong retaliation if the US goes ahead with its proposed 50% tariff hike on Chinese goods. But what exactly is a tariff? How does it work — and why is the US President relying on it as a strategic tool? Here we answer all your questions regrading ‘tariff’.
What Are Tariffs And How Do They Work?
Tariffs are basically like taxes that a country places on goods imported from other countries. Governments usually calculate taxes as a percentage of the product’s price. The importing company pays the tax to the country where the goods arrive. The company might raise prices to make up for the added cost. There are also chances where company might raise prices for customers or it can reduce the amount of foreign goods they import. Reciprocal tariffs mean that one country sets the same or similar tariffs on another country’s goods in response to the tariffs that country imposed.
Why Has Trump Turned To Tariffs As A Strategy?
For decades, Donald Trump has advocated using tariffs as a tool to boost the US economy. According to him, raising tariffs can offer several advantages for the country. Americans are likely to buy more US-made products, as higher tariffs may discourage other countries from exporting to the US. This, in turn, would help the government collect more tax revenue and attract greater investment into the country.
Trump Pitches For Trade Gap Reduction
Trump wants to reduce the trade gap — It means the gap between how much the US imports (buys from other countries) and how much it exports (sells to other countries). According to Trump the other nations have been cheating US and taking advantage. Apart from tariffs, Trump has made other demands too. In his current term, he announced tariffs on China, Mexico, and Canada, saying they should do more to stop migrants and drugs from entering the US.
Trump’s Increase ‘Reciprocal Tariffs’
On April 5, Trump had announced minimum 10% tariff on all imports to the US. This 10% tax will be applicable to UK, Argentina, Australia, Brazil and Saudi Arabia. However, many nations will face much higher tariffs, from 9 April. The U.S. will charge a 49% tariff on Cambodian products, impose a 46% tariff on Vietnamese imports, and add an extra 34% tariff on goods from China (on top of the previously announced 20%). It will also tax goods from the EU at 20%.
How Do This Impact Goods Price?
Tariffs increase the cost of imported goods by imposing additional taxes on them. Which in return leads to price hike of the goods in several ways. When foreign products like electronics, clothing, or raw materials face higher tariffs, The company or the importers may pass those costs onto consumers, raising retail prices. If local companies don’t have to compete with cheaper foreign products, they might increase their prices because they know customers don’t have many low-cost choices left. Some companies need to buy things like steel or chips from other countries. If there is a tariff, these things become more expensive. Then, it costs more for the company to make their products. So, they increase the prices for customers. This makes many things cost more for everyone.
China Vows To Retaliate
According to Bloomberg, China has vowed to retaliate with higher tariffs following US President Donald Trump’s latest threat to impose additional duties. The statement came a day after Trump warned China he would impose an additional 50 per cent tariff if Beijing persisted with its current 34 per cent retaliatory tariffs. As per the report, the Chinese Ministry of Commerce condemned the US’s move, calling it “a mistake on top of a mistake.” The ministry added that the latest escalation “exposes the exploitative nature of the US,” and warned that if Washington follows through, China “will fight to the end.”
