Explain Like I'm Five

Tariffs suck for the country implementing the tariff. But before I tell you why they suck, let me tell you the way they are supposed to help.

Here’s the way tariffs are supposed to work according to people that like tariffs (spoiler alert, this thing I’m about to describe is a fantasy and I’ll explain why).

Let’s say people in the US can make widgets for $10 and sell them for $12 and have a viable business. But mean old foreign country can make widgets for $5 and sell them for $7 and have a viable business. The foreign country sells the people of the US widgets for $7, which is great if you live in the US and want to buy a widget but sucks if you live in the US and want to make a widget.

Tariffs are supposed to protect local businesses by making foreign goods less competitive. Let’s say we pass a law putting a $10 tariff on foreign widgets. I used to import widgets from foreign country and pay the manufacturer $5 per widget and sell them to Americans for $7. Now when I import the widget from the foreign country I still pay the manufacturer $5 per widget but now I have to pay the US government a tariff of $10 per widget. Each imported widget now costs me $15 and so I have to sell them for $17 to make a profit. This now means that American made widgets are competitive again, the locally made $12 widget is a great deal compared to the $17 imported one. Great if you are a US widget maker and shitty if you are a US widget buyer.

Now you might notice the people in the US buying widgets, even in the best fantasy scenario, end up getting dicked over. The theory goes that widget making jobs are good though and if we do that enough then everyone will have to pay more for goods but we will have lots of jobs making stuff that pay ok.

Now here’s the part that really, really sucks. Let’s say you are a US widget maker and now you know that your foreign competition can’t make a widget for less than $17. You could sell your widgets for $12 and have a viable business or you could sell them for $16.99 and have a super profitable business. I’ll just gesture broadly at the sea of corporate greed we find ourselves floating in and let you decide which is more likely.

Tariffs induce even local manufacturers to raise prices because it hurts competition. It’s basically a massive transfer of wealth from local consumers to local producers by cutting out the foreign producers and the competitive pressure they exert on the market. This is why basically every economist said “do this and kill the economy”

So why do people want tariffs? Well the promise for your average voter is that the tariffs are going to bring back good solid blue collar jobs. You can go work in a factory and pump out widgets and get a nice middle class paycheck. It’s a nice sales pitch and a lot of people would really want that to be true. I suspect though that the manufacturers will automate most of this work and pocket the profits, again, gestures broadly at the late stage capitalism hellscape all around us.

Okay, that's not how tariffs work, a tariff is just a tax on a foreign good that american companies have to pay when they bring that good into the country.

Let's say that a vacuum cleaner costs 100 dollars, a 25% tariff is a 25% tax that the company that brings that vacuum cleaner into the country has to pay. That company still wants to make a profit, so they raise the price by 25 dollars.

It's american companies that pay tariffs, and that extra cost gets passed on to the consumer. The reasoning behind it is that as foreign goods become more expensive consumers will want to buy more american made products. (This is a huge oversimplification)

So yes it does hurt american consumers, and it will make stuff more expensive. Most actual experts say that these tariffs make no sense economically.

However, Trump wants the tariffs because they look good politically, and he's willing to make things more expensive if it means people will vote for him.

TLDR: Tariffs will make stuff more expensive, but they're popular.

Youre got the right conclusion, wrong start.

Tariffs are taxes paid by the company doing the importing, not the country.

If my company buys shirts from Canada, its not the canadians that pay that tax, its my company. And you can bet your ass im raising my prices.

Just to add, I work with this stuff all day as a Licensed Customs Broker. The US already has a lot of low tariffs (duties) on a huge range of goods. There are also a lot of free trade agreements in place that reduce or eliminate these tariffs if certain requirements can be met. The first round of tariffs on China are still around, tons of products from China already have 25% duty on top of the ‘normal’ duty rate for a said product.

I am curious what mechanism they will use to try and impose the tariffs quickly - there are only certain legal ways to do this and they take time and some need Congressional approval and investigations.

No, not really.

That logic only holds if american consumers have infinite money, which they dont. You cant just raise the prices indefinitely, eventually people just cant afford to buy the product so they dont buy it at all.

So it hurts everyone, the actual outcome is the product straight up just vaporizes off the proverbial shelves, you're supply dries up.

For canada this heavily includes:

• Automobiles, enjoy going back to having year long + waits for getting your car you wanna buy
• oil, gas prices will skyrocket because the US has its own supply, so people will still buy it but yeah, prices will just go sky high
• Machinery, including construction equipment, refinery equipment, turbines, etc etc. So this will result in massively hiked up city level taxes as your local power plants, processing plants, etc find their repairs skyrocket in costs. Also potentially a lot of refineries and plants will no longer be able to afford operating costs so they'll just shut down, so unemployment will skyrocket
• Medication, Im sure you see where that one ends up going...
• Aircraft and Spacecraft

I don't know how the US thinks this isn't just shuffling money around as the primary money for this is from federal spending, so they're literally just imposing tariffs on themselves, which is pretty stupid. Par for the course though.

Seeing questions like this is so scary that so many people don't get that simple concept.

Seeing stuff like this is mind blowing: https://youtube.com/shorts/bf3sLnZ0S04

Tariffs is just a fancy name for tax that you pay if you buy something from another country. The producers in that country already got paid, you pay that tax when the product is crossing the border.

Yes. Theoretically, affected companies could move manufacturing onshore, but that takes years of planning, so realistically, won't happen.

Why? When all you know is a hammer...

Well, this may just be what Canada needs to finally start selling their oil to China!

Higher prices incentivises alternative suppliers.

The goal is to incentivise American manufacturing. Off shoring has hurt Americans a lot. Tariffs are supposed to help that