Throughout the past few weeks, United States President Donald Trump has announced a series of tariff policies, with shifting statements that have led to growing concerns about global economic instability.
With Trump’s tariffs affecting nearly every country, many terms have been thrown around to describe the potential results.
From trade wars to stock market drops, this article explains, in simple terms with illustrations, what these key terms mean, including those that may become more important in the coming months.
Tariffs are simply taxes imposed at the border by one country on the goods of a foreign country. They are usually aimed to protect local businesses from foreign competition.
A trade war occurs when, for example, two countries dispute trade practices and one country places extra tariffs on goods from another that it believes is engaging in unfair trade practices. The other country retaliates with tariffs and this tit-for-tat continues, thus escalating into a trade war.
It’s like an economic tug-of-war where both sides keep pulling harder instead of finding a way to agree.
A good example is the US-China trade war, which has been in effect since 2018 when the US first placed tariffs on Chinese goods. More recently, the tit-for-tat between Washington and Beijing has seen tariffs on China rise to 145 percent.
A trade deficit occurs when a country buys (imports) more goods than it sells (exports), meaning the demand for foreign goods is greater than the supply of its own products.
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