Mechanics, Motives & Impacts
What tariffs are, why governments use them, and who pays.
Introduction to Tariffs
This lesson introduces tariffs in detail.
You’ll see how they work, why governments impose them, and what effects they have on international trade, domestic industries, and consumer pricing across different sectors of the economy.
We’ll continue to follow Daniel, as he navigates new costs, supply chain disruptions, and tough business decisions driven by tariffs on imported materials that affect his production, pricing strategies, and long-term plans for growth.
What Is a Tariff?
A tariff is a tax that a country places on products that are brought in from other countries.
When a company imports a product, the government may charge a fee at the border.
This fee increases the total cost of the product.
The importer often passes this cost along to the customer by raising the selling price.
Tariffs are meant to make imported goods more expensive than similar goods made locally, encouraging people to buy products from their own country.
Why Governments Use Tariffs
Governments use tariffs to protect local businesses from lower-cost foreign products, keep jobs within the country, and generate public revenue.
By taxing imports, domestic goods become more attractive to buyers.
Tariffs can also be used during trade disputes.
If one country believes another is acting unfairly, it may add tariffs as pressure.
These goals help shape when tariffs are applied, how high they are set, and which products are affected by them.
Strategic Uses of Tariffs
Tariffs do more than protect jobs or raise revenue.
They serve as a foreign policy tool to retaliate against unfair trade practices and exert pressure on rivals.
Governments also use tariffs to protect industries vital to national security, like defense or critical tech.
Additionally, tariffs can nurture infant industries that are not yet globally competitive.
By shielding them from imports, countries help firms grow, improve productivity, and eventually compete in open markets more effectively.
How Tariffs Affect Business
When a tariff is added to a product, the total cost to bring that product into the country goes up.
The company that imports it now pays more, and this cost usually gets passed along to the buyer.
This can lead to higher prices for customers or lower profits for the business.
Some companies may try to find a different supplier without tariffs or use local products instead.
Even small tariffs can force businesses to change how they buy or sell goods.