What are tariffs and how do they work?

Tariffs are on investors’ radar due to their impact on the economy and markets.

Now more than ever, tariffs are a key topic in the global economy. Not only do they affect inflation and corporate profitability, but they have also become tools for political negotiation.  

Since his campaign and now in his administration, Donald Trump has pushed for tariffs on imported goods from China, Canada, and Mexico, aiming to protect U.S. industry and reduce the trade deficit. However, these measures can have side effects such as trade tensions and rising consumer prices. 

🔹 What are tariffs? Tariffs are taxes imposed by governments on imported goods to make them more expensive and encourage the purchase of domestic products. They can also be used to generate revenue or as a political pressure strategy. 

🔹 How do they work? When a country imposes a tariff, the importing company pays the tax, either absorbing the cost or passing it on to the end consumer through higher prices. 

🔹 Impact on businesses: As production costs rise due to more expensive materials, companies often increase their product prices, affecting both businesses and consumers. 

In a nutshell, tariffs can benefit certain local industries but also make products more expensive and impact the global economy. Staying informed is key to making strategic financial decisions in response to these changes. 

Trade barriers: U.S. tariffs have risen significantly in recent years. 

Source: Capital Group