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.

Tariffs aren't charged to the country or corporation the product came from. They are charged to the importer. It's literally a fee at customs to release the item into the country. Some companies take care of this for you if you're buying personally from overseas. Some do not and it is more transparent

Let's use alcohol as an example because I like scotch and some stores in the UK do and some don't. The ones that take care of customs for me would just show me a price of 68.75£ along with a warning that the exchange rate may cause a minor shift in price. The ones that do not would show a price of 55£ along with a warning about the exchange rate and that I need to deal with customs. Customs sends me a letter when the bottles arrive in the country saying I need to pay 17.26 US Dollars (about 13.75 in British money) to clear customs.

So that's why Trump's Tariffs are actually a sales tax on Americans. But why are countries going to retaliate?

That's because industry owners in affected countries are going to complain to their government about our government making their products more expensive in our country. It's okay if you need to read that a couple times, I did when I was learning about international economics. This is going to affect the trade balance between the two countries if they don't retaliate. It will make American goods cheaper and thus give them an advantage on the world stage because they always have a protected market at home to profit from.

This is especially disastrous when the countries are dissimilar in size. Like the US and UK. Take two producers of Soybeans. In the US they have twice the available production capacity (arable fields) and a protected market six times the size of the UK by population. So if the UK producer can only sell at market rate to 60 million people and the American producer can sell at market rate to 330 million people, the American producer can make more money before we even talk about international markets. So the American company has more money than the UK company to operate internationally.

Between the two countries specifically this means that without retaliatory tariffs the American company could even buyout or bankrupt the British company and replace it in British stores, without hiring British workers. That's an extremely important point in an economic system based on selling your labor. And why the workers will also demand retaliation.

I could keep going, there's a lot that goes into this but at the end of the day everyone's economy gets hurt. And the biggest thing to know is that there are two giant weak points in a trade war. Being a manufacturing country that exports a lot of stuff, (Mexico), and being a food importer, (USA). You'll notice I didn't mention China. That's because they import food mostly from Africa and export goods to Russia, Europe, and the rest of Asia. Our tariffs are not going to meaningfully hurt them. As far as Mexico, you may be thinking we'll just tariff their manufactured goods, but not their food. Well, let me introduce you to Exit Tariffs. They can make their food more expensive only in the US as a retaliation. Is that a bit self harming? Yeah, but what's worse? Less income or Less food?

And that's why Trump can't possibly win his Trade War.

you are correct. this is exactly what's happening with Canada and Mexico.

why do it? purely speculative, but there's some convincing evidence that he's a Russian ~~asshole~~ asset and is attempting to weaken the US.

https://www.snopes.com/fact-check/kgb-spy-russia/

https://slate.com/news-and-politics/2021/03/trump-russian-asset-election-intelligence-community-report.html

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.

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.

Tariffs are not meant to be a stimulator of your own economy, they are a more so a test of it's endurance. Let me explain.

Globalism is a double edged sword. We collectively came to the agreement to put it on every country themselves to figure out what they're good at and how they can survive on the global market. It got us as far as we are today. A country can specialize creating a product from the most available resources within it's borders be it natural resources or skilled/unskilled labor. Having access to the global market means way higher profits than just selling to your own people.

The problem with globalism is that it is completely unregulated by an overseeing entity, and since recent times have shown that hostile territorial takeovers are generally frowned upon, every country is essentially stuck with the resources it already got. This means some countries have lucked out and have more resources available than others and are therefore a bigger economic power. Generally the more complex the product your country is exporting is, the higher the state of development your country has. A lot of countries struggle to build a complex industries to meet global demands (see Korea with stem cell reasearch in the 90s and 2000s).

So if territorial takeovers are a no no, then economical takeovers are the peaceful alternative. The problem is that China has the most amount of manpower in the world, it isn't exactly a small country either and therefore has a lot of natural resources. If China was a culturally open and peacefull democracy, this wouldn't be an issue, but as we all know - it isn't. If China decides to take over a market - they can. Additionally the have always been 'rules for thee, not for me', China buys up other countries property and land but doesn't allow others to do the same for it.

Yes, in the end, everybody profits from the efficiency of globalism and open trade but the scales are not evenly tipped for all. This leaves most countries vulnerable to economic attacks from bigger global players. Tariffs are in a way a bargaining chip in the global market. The idea behind it is to say 'I'll take my business else where' in the hope that being a big enough importer that jumps ship, would be enough to damage the tariffed countries economy. It's essentially an economic attack from the bottom up.

An additional reason for US tariffs being bad is that it will weaken their relationship with China, and will turn China even more towards Russia, which is presumably the whole purpose given Trumps ties to Putin. All in all the next 4 years are going to be difficult for everybody.

Tarrifs are paid by the importer and cost passed on to the consumer. The idea is to make it comparatively cheaper to buy local and reduce dependency on China. The problem with it is that other countries will impose tarrifs on US exports as well so a lot of people will lose their jobs and prices go up but it will increase local manufacturing jobs on the other hand.

Generally speaking people are better off when there are no tarrifs

Yes it will absolutely raise virtually all consumer prices, across the board. Some more than others.

The tariffs will be paid by the importing companies, and then it will cause the prices of those goods to rise.

The hope is that this will incentivize and result in more development of the American manufacturing sector, resulting in medium and long term gains.

Short term there will definitely be a cost, paid by us.

The dumbest thing Democrats did was not referring to tariffs as an Import Tax. A tax you pay to import the goods.

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...

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.

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.

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.