Explain Like I'm Five

Timmy has a competing lemonade stand with your kid, and he charges $1 for a glass and you charge $3 for a glass. Rather than lowering your prices, you place a $2.50 tariff on any lemonade from Timmy in your neighborhood. Now everyone pays $3.50 for his lemonade, and it only makes sense for your kid to charge $3.50 as well, because Timmy’s lemonade has to get to your neighborhood while yours is local, so why not pocket that 50 cents.

In this scenario, Timmy cannot sell his cheaper lemonade to your neighborhood at a cheaper price. Everyone in your neighborhood must pay the new inflated price. People in other neighborhoods will go to Timmy, so only your neighborhood buys your lemonade, although some people will try to circumvent the tariffs by buying Timmy’s same lemonade for $2 in a neighboring area.

When you enter the United States, customs "inspects" all the stuff you're bringing back. If it's more than $850 worth of stuff, then you have to go to the cashier and pay a tax.

The tax is a percent of what the stuff is worth. The percent rate can depend on what type of goods it is, and what country it's coming from. There are massive tables to look this stuff up.

The stuff you carried out of the country and are now bringing back with you doesn't count toward the $850 limit.

If you're shipping stuff in but not traveling with it, there is no exemption. Tax applies right away. You also have to hire a guy called a broker to help you with the CBP paperwork and to submit payment.

So let's say somebody is importing sugar from the Caribbean, and there's a tariff. They have to pay a percent to the feds every time they ship in some sugar. They raise the price they charge on the sugar to cover that. Then sugar from Louisiana looks more attractive on the store shelf because it's cheaper.

Who pays? Whoever is shipping the goods in pays, but they make it up by charging more for the imported products.

Why do it? Usually, you want to make some domestic industry more attractive by raising the price of the foreign competition.

In the sugar example, sugar is more expensive to farm in Louisiana because people get paid more, and the equipment is more expensive. If there wasn't a tariff, people might stop farming sugar in Louisiana entirely. That might make some people sad. On the other hand, all Americans would be able to pay less for sugar without the tariff.

Tarrifs means they add tax on specific things to discourage people from buying it. It's used on foreign goods to make them more expensive than local stuff.

If Chinas EVs are cheaper than US one's, american companies could go out of business and China could take control of the EV market. The US will basically add a tax to Chinese EVs so US one's remain competitively priced in comparison

Tariffs on something from China doesn't get paid by China. It gets paid by the US consumer.

And I don't mean that like "China pays the tariff so the end result is a higher price for the consumer"...I mean, literally, China doesn't pay it. China sees no difference in the cost of importing things to us. Nothing changes for them.

When there’s enough competition, tariffs shouldn’t matter. For example, if refrigerators are made domestically and also imported from Europe, Japan, Canada, Mexico, and Korea — setting a tariff on say Chinese refrigerators shouldn’t do anything to the consumer. The problem is everyone has sold all their manufacturing to Chinese companies.

Generally, it’s free money for the government. The cost is put on the consumer not the country of export. It can favor domestic products by making the imports too expensive.

So, the BYD tariff was so high that pretty much no one will buy one.

But when they do it on steel, or something similar, and companies have to buy it anyway, that cost is just added to the final price.

Essentially, tariffs are a tax that disproportionately affect low to middle income people the most.