President Donald Trump has threatened to impose taxes, called tariffs, on goods imported to the United States from Mexico and China.
Governments impose tariffs on imported goods and services to make them more expensive to consumers. Tariffs provide revenue to the government and give a price advantage to domestic producers.
A tariff could mean a foreign-made car or bottle of beer will cost more, so domestic autos or beverages sell better or can command higher prices. This makes domestic companies more competitive with foreign firms and helps them keep or even expand their workforces.
While tariffs protect domestic industries, they do so at the expense of consumers, and at the risk of increasing inflation. Tariffs also hurt foreign producers, who may press their own government to retaliate by imposing tariffs on U.S. goods headed for their home nation.
This kind of tit for tat slows trade by making it more expensive. Reduced trade can also hurt economic growth and employment by lowering demand for goods and services.
Economists say a vicious circle of rising protectionist tariffs and countertariffs slashed international trade by two-thirds during the 1930s, contributing to the Great Depression.
