What are Tariffs and How Do They Work?
A simple explanation of tariffs.
Tariffs, tariffs, tariffs. We sure have been hearing a lot of that in the news. I know I am not the only one that has been unclear on what tariffs are and how they effect businesses and the economy. Here is a simple explanation...
Tariffs are taxes that a government places on imported goods. They are used to make foreign products more expensive compared to local products, which can help protect domestic industries and jobs.
For example, if a country imports cars from another country, it might add a tariff of 20%. This means that the imported cars will cost 20% more than their original price. The extra money from the tariff goes to the government.
The way it was explained to me, please see the graphic.
Tariffs can be used for different reasons. Sometimes they’re meant to protect local businesses from foreign competition. Other times, they are used as a tool in trade negotiations between countries. However, tariffs can also lead to trade wars, where countries keep raising tariffs against each other, which can hurt businesses and consumers.
In short, tariffs are a way for governments to control trade and protect their economies—but they can also make things more expensive and complicate international relationships.