During the campaign, President Trump disparaged many of the current trade agreements and promised to bring manufacturing jobs back home. After winning the election, he launched a protectionist trade war against China, with his administration using tariffs as an important tool to accomplish that goal.
A tariff is a tax collected at a nation’s border on goods and services that are imported from abroad. That money goes to the government of that country, and the cost is pushed through the supply chain to consumers in the form of higher prices for those imported products.
When a country places tariffs on other countries’ products, those foreigners will often try to retaliate. In the past, these retaliations have come in the form of export restrictions (embargoes), which halt or restrict shipments from one country to another for political reasons, and import taxes, which add a fee on the purchase of goods from outside a nation’s borders.
Whether these retaliations are in the form of import taxes, export restrictions, or currency manipulations, they are all designed to make it harder for nations to sell their goods and services to other countries, and thus reduce the amount of money they can earn from those sales. In the end, limiting the amount of money a country earns through trade reduces its real income and purchasing power, and can ultimately devastate its economy. The same is true for blockades of ports, which prevent the flow of goods between nations.
