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03 Apr, 2025
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Why Do Countries Impose Tariffs? The Costs and Benefits Explained
@Source: republicworld.com
In what he called a “Liberation Day” for America, US President Donald Trump announced new tariffs on several countries, aiming to protect domestic industries and reduce trade imbalances. The US has imposed a 34% tariff on Chinese goods, while India faces a 26% “discounted reciprocal tariff.” Key sectors affected include automobiles, steel, and electronics. A tariff is a tax imposed by a country on goods imported from other nations. It is usually a percentage of the product’s cost, collected by customs officials at entry points. The idea is to make foreign products costlier, encouraging people to buy locally made alternatives. For instance, US tariffs on passenger cars are typically 2.5%, while golf shoes face a 6% tariff. However, these rates can be higher for countries without trade agreements with the US. Trump has often claimed that foreign nations bear the cost of tariffs. However, in reality, American importers pay these tariffs, which are then passed on to customers through higher prices. This means the ultimate burden falls on American consumers. That said, tariffs do affect foreign countries by making their products expensive in the US market. To stay competitive, companies in China and other affected nations often cut prices or reduce profits, which can strain their economies. A study by economist Yang Zhou from Shanghai’s Fudan University found that Trump’s tariffs on China caused three times more economic damage to China than to the US. READ MORE: Gold to Soar, Markets to Plunge: The Price of Donald Trump’s Trade War! | Republic WorldThe main goal of tariffs is to protect domestic industries from foreign competition. They prevent foreign manufacturers from selling their products at unfairly low prices (a practice known as dumping) or benefiting from government subsidies. Historically, tariffs were also a major source of government revenue. Before income tax was introduced in 1913, tariffs accounted for 90% of the U.S. government’s revenue. However, as global trade expanded after World War II, tariffs became less significant for revenue collection. In the last fiscal year, the US collected $80 billion from tariffs, which is small compared to $2.5 trillion from income taxes and $1.7 trillion from Social Security and Medicare taxes.
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