President Donald Trump hit Chinese imports to the US with massive tariffs on Friday.
China responded with tariffs on US products.
Tariffs are taxes on imports designed to boost US production of goods.
The new tariffs will cause costs to go up for businesses that use imported goods from China — and possibly jump prices for consumer goods, too.
President Donald Trump’s tariffs on $34 billion worth of Chinese goods went into effect at midnight on Friday, which in turn prompted a swift response from the Chinese and kicked off an unpredictable trade war.
The Trump administration said the tariffs are necessary to protect national security and the intellectual property of US businesses. In addition, Trump has repeatedly expressed a desire to shrink the US’s trade deficit with China and protect American businesses from being undercut by Chinese producers.
In response to Trump’s decision, China announced tariffs of their own on $34 billion of US goods. The attack, and counterattack, appear to have pushed the two countries into a trade war.
What is a tariff?
A tariff, in plain terms, is a tax on goods coming into a country.
In the US, many tariffs are paid at the time of entry into the US via a customs broker or agent — along with other duties and fees that may apply to the import.
The idea of a tariff is to push up the price of foreign goods to make the US-made option more attractive.
In this case, Trump is attempting to get companies to use less Chinese-produced goods and opt for items made in the US or a imported from a more friendly trade ally.
Hans Mikkelsen, a Bank of America Merrill Lynch strategist, said the new taxes will shift the supply and demand for the various goods they are imposed on.
“International Trade 101 analyses the partial equilibrium effects of a tariff as driving a wedge between demand and supply curves, whereby the price goes up and the quantity down,” he said in a note to clients.
What does it mean for businesses?
For many businesses that use imported Chinese products, the cost to produce their items will increase, either because the company must use more expensive domestic parts or pay more for the finished products.
Trump’s China tariffs are particularly damaging because they focus on intermediary goods, or parts. US firms, including many small- to medium-sized businesses, use these parts to make finished products.
By increasing the cost of parts, the tariffs will …read more
Source:: Business Insider