Retaliatory Tariffs, Trade Wars, Crashing Economies, Oh My!

Basically, tariffs are taxes or duties imposed on imports. This means that a product manufactured overseas and sold here in the United States will cost more because the company importing it will have to pay a fixed percentage of the price to the government.

Here's an example: If you're a retail company that sells Chinese goods (that is, things manufactured in China, including everything from toys to smartphones) to U.S. consumers, and Trump's latest threats go into place, you'll have to pay an additional 50 percent of the price to the tax man.

So, if you've got an upcoming shipment of Chinese imports worth 2 million dollars, you will have to pay the U.S. government 1 million dollars if you want to sell them here.

If you're wondering why anybody would consider this kind of move a good idea, you're not alone; tariffs are like any tool, with good and bad potential for global markets and the average citizen.

Tariffs are a kind of protectionism, which means that — in theory — they are meant to protect the workers (and consumers) of the country that imposes them.

If you have a growing domestic steel industry, and a country with a much bigger and more robust steel industry is flooding your market with cheap steel, that can hurt your industry, which might not be capable of competing.

So, by imposing tariffs, you raise the price of foreign steel, inflating its price so that your domestic industry can keep up, continue to grow, and compete.

But you can also wield tariffs like a weapon. Many of the tariffs announced by the Trump administration are so high they will effectively make trade impossible, forcing a massive shift of manufacturing and consuming habits both here and abroad.

Tariffs imposed for the sake of damaging other economies are an especially dodgy proposition when the world economy is so highly integrated, as ours currently is.

Building factories, especially for technologically complex products, doesn't happen overnight, and the shocks caused by sudden disruption could be felt for a long time to come.

One major issue with tariffs is that while they are technically imposed on the companies importing the product, that cost usually gets passed on to the consumer in the form of higher prices. If a car manufacturer has to pay a lot more to import its product (or parts of its product) it will likely raise prices.

In theory, of course, tariffs should encourage both investment and consumption to American-made products. But there are at least three problems with that.

All in all, it's usually those with the least to spend who wind up footing the bill when tariffs get imposed, especially when they're steep. Current estimates for the cost of Trump's tariffs come to $1900 per US household for 2025 alone [source: Tax Foundation]

As we're seeing, tariffs tend to follow a tit-for-tat trajectory. The logic is pretty easy to understand: If you're going to make things harder on my domestic producers and consumers, I'm going to hit you back with tariffs of my own! Before you know it, you have a full-blown trade war.

All of this is complicated by the trade surplus or deficit one country has to another. If we buy more things from another country than they buy from us, we run a deficit with that country.

But that's just how trade works. It's not necessarily better to have a surplus than a deficit, and given how diversified and complex the world economy is, expecting that you have enough to sell to every other country than you buy from them is pretty nonsensical.

Trump and his staffers, such as Commerce Secretary Howard Lutnick, have framed these sky-high tariff levels as both a way to boost the American economy and as a high-powered negotiating tactic. The idea is that the tariffs will force other countries — including our trading partners — into different arrangements that benefit American producers and consumers.

But American consumers already benefit from having access to cheap Chinese products, and many economists have been sounding the alarm that the coming tariff war will be a net drag on the American economy [source: U.S. News], potentially instigating a recession and even a depression.

Still, some businesses and investors could benefit. Domestic suppliers who have faced competition, even from closest allies, such as Canada and the European Union, could see big growth. Wall Street financiers who play the markets the right way could benefit by, say, short-selling stocks that are falling.

This is how things are shaping up: Trump's tariffs have provoked retaliatory tariffs from just about everywhere: China responded with tariffs of its own, as well as export controls, which would limit U.S. manufacturers' access to certain valuable rare-earth minerals, like gadolinium and terbium [source: Reuters].

As of April 7, 2025, the Trump Administration threatened to raise tariffs to 50 percent on Chinese imports — a major escalation. So far, Beijing has held steady, with no sign of adjustment from its commerce ministry, but things are changing day by day.

It's important to note that the White House has slapped tariffs on pretty much everybody — including major trading partners like Mexico, Japan and Taiwan — and when China announced retaliatory tariffs, they were among a chorus of other announcements from those other countries.

Ideally, a global trade policy strives to get the balance just right: a tariff here and there, carefully calibrated to encourage domestic investment, while also keeping prices for consumers low.

Organizations like the World Trade Organization (WTO) exist, at least in principle, to keep trade "free," or relatively unencumbered by tariffs.

In fact, China has responded not simply with retaliatory tariffs, as other countries have, but initiated a dispute through the WTO to try and head off a trade war. The hope is that, here as well as elsewhere, working and poor people don't suffer from the whims of powerful corporations and politicians.

But as history has shown, conflicts are easy to initiate, hard to resolve, and the rich tend to do just fine.