In recent weeks, you may have heard the buzzword “tariff” all around you – on the news, on social media, and more. This is a result of the economic policy instituted by the Trump administration. But what is a tariff, and what is its purpose? In this article, we will discuss tariffs conceptually from an apolitical standpoint and their effects on the global economy.

A tariff is a federal policy that puts a tax, or a tariff, on imports or exports. This essentially means that goods produced or distributed from other nations have to pay a fee to sell their goods here in the United States. Take a 10 dollar T-shirt, for example, produced in a country like Canada. In this hypothetical scenario, a 20% tariff is placed on all of their T-shirt imports to the United States. That means that the price of that T-shirt would increase to 12 dollars rather than the original price of 10 dollars. This price increase occurs because companies raise their prices to combat the tariffs imposed upon them.
Now you may be asking, if tariffs ultimately increase the prices of goods we buy from these countries, why do we even bother imposing them? Well, the purpose of tariffs is rather simple. When the government imposes tariffs, foreign competition is slashed, and small businesses, like a T-shirt company, making their products here in the United States can charge less money and attract more customers and thus produce more sales. Tariffs can also help to protect local jobs, particularly in manufacturing, as more companies who may have outsourced labor to foreign countries are now encouraged to bring jobs back to the United States. By producing their products in the United States, companies will avoid tariffs and will ultimately make more money. Finally, tariffs can also be beneficial as they help generate income that is directly given to the US government. The government can then use those profits to pay for infrastructure projects and welfare programs or to offset the income loss through tax cuts.

Tariffs, or federal fees on imports and exports, remain a hot topic of political debate and most likely will for the remainder of the Trump presidency. It’s important to understand they have pros, such as the protection of domestic jobs and businesses, and cons, such as increased prices for consumers buying foreign goods.