"What are the economic effects of tariffs for consumers, businesses and global economies?" -Josiah Dunn
When we hear the word "tariff", our first thought might be that it only applies to economists or politicians and is something that we, as the consumers, don't need to worry about. But these tariffs have an impact on nearly everything around us, from the food we eat to the technology we use. Whether you're a consumer, producer or economist, understanding how these tariffs work is essential.
During my February half-term break this year, I was on holiday in Maryland visiting my grandparents, where something really stood out to me in the grocery store. A staple common household item, Coca-Cola, a normally cheap soft drink, costed over $7 for a pack of six. Back home, I could buy six cans for £4. I asked a local worker why the price was so high, and she casually responded, "It's just tariff inflation." Tariffs do affect our society more than many people may have realised.
What are Tariffs?
A tariff is a tax put in place on goods from abroad. For example, if the UK puts a 20% tariff on imported cars from Japan, a car that would have cost £20,000 now sells for £24,000. The extra £4,000 is paid by the UK car dealership business to the government, but sometimes the business will only pay part of the increased cost and will increase the price of the car so the consumer has to pay more. The aim of the tariffs? Often, it’s to make foreign goods more expensive so that people are more likely to buy domestic alternatives, which profit the nation that imposes tariffs.
Why are Tariffs Put in Place?
Tariffs are often used to help a nation's domestic industries. If its local businesses are struggling to compete with cheaper imported foreign goods, the government can slap tariffs on those imports to give the local businesses an advantage. This is often regarded as a positive use of tariffs, but they can be used in politics as well for punishment and pressure. The best example being the recent US-China trade war, where both countries imposed billions of dollars’ worth of tariffs on each other’s goods in a battle over what "the U.S. has said are longstanding unfair trade practices and intellectual property theft". (BBC News 2025)
Tariffs and Consumers: Paying the Price
For consumers, tariffs are almost always bad news. When governments place tariffs on imports, foreign products become more expensive. Companies usually pass these costs onto buyers. For example, when the US imposed tariffs on Chinese imports during the 2018–2019 trade war, the average American household paid an extra $831 per year due to higher prices on goods like electronics, clothing, and furniture (FEE 2019).
Impact on Businesses: Winners and Losers
For businesses, the effect of tariffs is mostly negative. Some of the nation's industries do profit, however tariffs put in place can protect them from cheaper foreign competition, giving them room to grow. But many businesses suffer. Companies that rely on global supply chains face higher costs for imported parts or raw materials. This is especially true in manufacturing. US carmakers, for example, were hurt by 50% tariffs on imported steel and aluminium, leading to higher production costs and slower growth (Investopedia 2025). Unfortunately, small businesses are often hit hardest. Unlike large international businesses, they can’t easily absorb the higher costs or find alternative suppliers.
Global Economic Effects: Disruption and Division
At the global level, tariffs disrupt efficient trade flows. When countries raise barriers, it reduces the overall volume of trade, leading to lower economic growth. According to the IMF, the 2018–2019 US-China tariff war risked lowering global growth by as much as 0.5%, which is roughly $430 billion lost in GDP worldwide (The Guardian 2019). However, similar to tariffs' impact on businesses, some would argue that the tariffs can correct unfair trade practices. But they come with the cost of short-term or long-term economic pain: tariffs can cause trade wars, job losses and higher input costs and reduced export competitiveness lead to redundancies and layoffs.
Current Events: The UK and Beyond
The 2021 EU-UK Trade and Cooperation Agreement (TCA) provides for zero tariffs and zero quotas on all trade of EU and UK goods that comply with the appropriate rules of origin (UK Government 2021), which protects our industries from facing tariffs from European nations, and vice versa.
As of June 2025, Jerome Powell is defying Trump and not cutting interest rates to "wait and see how tariffs affect US prices" (The Guardian 2025). If rates were lowered, classical economic theory suggests that both economic development and inflation would increase. Trump wants to reduce interest rates to boost development however it comes with the risk of inflation increasing. Powell stated that Trump's tariffs were "likely" to increase prices, which goes against the Federal Reserve's goal to bring down US inflation and have stable economic growth in the United States.
In May 2025, UK Prime Minister Keir Starmer signed a deal with President Donald Trump to lower Trump's automotive, steel and aluminium tariffs on the UK. The deal lowers the 25% tariffs to the president's baseline 10% (Politico 2025). This has a large impact due to the UK being one of the largest exporters of aluminium to the US. This deal affects the businesses as well by protecting British businesses and workers as well as thousands of British jobs in the sectors previously affected by the automotive, steel and aluminium tariffs.
Are Tariffs Worth It?
In the short term, they can also offer political and economic protection for certain industries, but they can cause economic pain too. Several long-term consequences come with tariffs as well: higher prices, reduced efficiency, job losses, and strained international relations. These costs outweigh the gains, but so far during President Trump's second term, very few of the tariffs have been in place long enough to see their negative consequences. Tariffs can be useful in specific, limited cases, but as a long-term strategy, they’re often more damaging than helpful.
BIBLIOGRAPHY:
Ben Chu (2025) What would a US-China trade war do to the world economy?
https://www.bbc.co.uk/news/articles/c4g2089vznzo
N/A (2025) A quick guide to the US-China trade war
https://www.bbc.co.uk/news/business-45899310
James Pethokoukis (2019) Tariffs on Chinese Goods Cost American Households $831 Annually, Fed Study Finds
Diccon Hyatt (2025) Steel and Aluminum Tariffs Are Set to Double On Wednesday. Here's Why That Matters
https://www.investopedia.com/steel-tariffs-double-on-wednesday-here-s-why-that-matters-11747144
Richard Partington (2019) IMF warns Trump trade war could cost global economy $430bn https://www.theguardian.com/business/2018/jul/16/imf-trump-trade-war-global-economy-us-tariff-weo
Natalie Fang Ling Cheng, Akram Shavakatovich Hasanov, Wai Ching Poon and Elie Bouri (2023) The US-China trade war and the volatility linkages between energy and agricultural commodities
https://www.sciencedirect.com/science/article/pii/S0140988323001032
N/A (2021) Trade with the UK as a business based in the EU https://assets.publishing.service.gov.uk/media/608ae0c0d3bf7f0136332887/TS_8.2021_UK_EU_EAEC_Trade_and_Cooperation_Agreement.pdf
Callum Jones (2025) Federal Reserve chair defends holding interest rates after fresh Trump attacks
https://www.theguardian.com/business/2025/jun/24/fed-jerome-powell-trump-interest-rates
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