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Tariffs 101: What they are, how they work, why they matter now more than ever

Published :

06-04-2025 15:02|

Last Updated :

06-04-2025 15:03|

Don’t know what a tariff is? Too embarrassed to ask? Confused by all the trade talk on the news lately? You are not alone—and we have got you covered. Welcome to Tariffs 101.

Tariffs might seem like a dry, distant economic concept. But ever since US President Donald Trump made them a centerpiece of his 2025 agenda, they have become everyone’s business.

That is why we have broken it down in simple terms to help you understand exactly what tariffs are, how they work, and why they matter in your everyday life.

- Background -

On April 2, 2025, Trump declared a national emergency and proclaimed April 2 as “Liberation Day,” calling it “one of the most important days in American history” and “our declaration of economic independence.” His target? What he called a “large and persistent US trade deficit.”

To tackle it, Trump invoked the International Emergency Economic Powers Act (IEEPA), granting him authority to impose new tariffs. The result: a 10 percent baseline tariff on nearly all imports into the US, with Canada and Mexico as the only exceptions. These “reciprocal tariffs,” as the administration labeled them, were meant to punish countries with what Trump called unfair trade practices.

- So, what exactly is a tariff? -

At its core, a tariff is a tax placed on imported goods. Governments use tariffs to protect local industries and encourage consumers to buy domestic products instead of cheaper foreign alternatives.

Here’s a simple example:

Without a tariff: A foreign car costs USD 20,000, and a similar domestic car costs USD 21,000. Most people might buy the cheaper one.

With a 10 percent tariff: That foreign car now costs USD 22,000. Suddenly, the domestic car at USD 21,000 seems like the better deal.

This kind of policy helps local producers compete—but at a cost.

- How this affects everyday Americans -

For US consumers, tariffs can have a ripple effect. While the intention is to boost American manufacturing and protect jobs, the costs often land on everyday buyers.

When companies face higher import taxes, they typically raise their prices to stay profitable. That means appliances, cars, electronics, and even groceries—anything made with foreign materials or components—can become more expensive.

For example, when the US previously imposed tariffs on steel and aluminum, the cost of cars rose by several hundred dollars, consequently raising the costs of domestic cars and production.

And it is not just about price. Tariffs can limit choices too. If foreign products become too expensive to sell in the US, importers may simply stop offering them. That means fewer options for consumers—especially when domestic products may not offer the same value or quality.

- What about people outside the US? -

At first glance, it may seem like tariffs are a US domestic issue. But they can seriously impact economies around the world.

Countries that export goods to the US could see declining sales, which means job cuts, factory slowdowns, and shrinking national income. If a country depends heavily on US consumers, a sudden drop in demand can hit hard.

And then there’s the bigger concern: retaliation.

Tariffs rarely go unanswered. In a tit-for-tat move, foreign governments often respond by slapping their own tariffs on American goods, igniting what is known as a trade war.

That is exactly what’s unfolding right now. Just days after Trump’s “Liberation Day” speech, China announced a 34 percent retaliatory tariff on a wide range of US imports starting April 10. This kind of back-and-forth can cause prices to spike, limit product availability, and throw global supply chains into chaos.

- Bottom line: Who really feels the impact? -

If you are outside the US, you probably will not feel an immediate change in the cost of goods—unless your government responds with its own tariffs. But if you live in an export-heavy economy, or if trade tensions escalate, those effects may trickle down to your job, your paycheck, and your buying power.

For Americans, however, the impact will be more direct: higher prices, fewer choices, and the possibility of retaliatory pain from abroad.