Saturday, May 19, 2018

What Is A Tariff?

In March, President Donald Trump set two tariffs. He set a tariff on steel imports and aluminum imports. Import is goods that are bought from another country. Export is goods that are sold to another country.
Tariffs are a tax on imported goods. Businesses and people inside the country will pay extra money when buying goods from another country. That extra money is the tariff. It goes to the U.S. government.
Governments use tariffs to help their own businesses. They want people to stop buying goods from other countries. Tariffs also help the government make money.

The Effects Of Tariffs
Here is an example. Cocoa beans are used to make chocolate. Turkey needs to import cocoa beans.
Turkey imports many cocoa beans from the Republic of Cote d’Ivoire, a country in West Africa. Imagine if Turkey set a tariff on imported cocoa beans. Three things would happen.
First, cocoa beans from the Republic of Cote d’Ivoire would cost more. Chocolate makers in Turkey would have to pay the extra tariff. However, what if Turkey had its own cocoa bean farmers? Then, these Turkish farmers could sell cheaper cocoa beans than those from the Republic of Cote d’Ivoire. Chocolate makers would buy more beans from Turkish farmers because they are cheaper. Turkish farmers would make more money.
Second, the tariff would harm the Republic of Cote d’Ivoire. The farmers in the Republic of Cote d’Ivoire would have to lower their prices. Otherwise, people would stop buying cocoa from them. These farmers would make less money.
Finally, Turkey would buy less cocoa from the Republic of Cote d’Ivoire. The two countries would not trade as much as before.

The Risks
There is also another problem. In our example, farmers in the Republic of Cote d’Ivoire would lose money because of the tariff. So, the Republic of Cote d’Ivoire might want to do something about it. It might set its own tariffs on goods from Turkey. It would hurt companies in Turkey.
These kinds of actions can lead to a trade war. That is when countries punish each other with tariffs. It is why experts usually do not like tariffs.

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