Understanding Tariffs: What They Are And How They Impact Global Trade, Consumer Prices & Economic Growth

India.com

a day ago

New Delhi: The United States has imposed tariffs of up to 50 percent on goods imported from India. Half of this tariff (25 percent) is already in effect, while the remaining 25 percent will come into effect from August 27. This move comes in the wake of U.S. concerns over India's continued purchase of Russian oil, which President Donald Trump claims supports Russia's war in Ukraine. India rejects these allegations, highlighting that several European countries, including the United States itself, continue to trade with Russia.
An executive order signed by Trump states that the additional tariffs will take effect 21 days after issuance. India's Ministry of External Affairs has condemned the decision as unfair and unjustified. The White House insists that India is directly or indirectly importing Russian oil.
What Is a Tariff?
A tariff is a tax levied on goods imported into a country, calculated as a percentage of the product's value. For example, a 10 percent tariff means that a product priced at Rs 100 will incur an additional Rs 10 tax, raising its price to Rs 110.
Tariffs are paid by the importing companies, not the exporters. For instance, a US company importing a car priced at $50,000 must pay a $12,500 tariff if the rate is 25 percent.
Companies often pass these costs on to consumers by increasing prices. As tariffs rise, imported goods become more expensive, reducing demand.
As a result, American consumers may purchase fewer such products that will lead companies to seek cheaper alternatives or import less.
In May, a U.S. trade court questioned whether Trump had the authority to impose many of these tariffs under national emergency powers. An appeals court later allowed the tariffs to remain in effect pending a final ruling.
Why are Tariff Imposed?
Tariffs aim to encourage domestic purchasing by making imported goods more expensive. The additional revenue also supports government spending.
Trump has frequently asserted that tariffs protect and create American jobs and reduce the U.S. trade deficit, the gap between imports and exports. He claims other countries have taken unfair advantage of the United States.
Global Economic Shifts
Economists see tariffs as part of a broader strategy to reshape global trade. They say Trump's goal to reduce trade surpluses in countries such as China and Europe, which he describes as 'robbing America'.
Tariffs on steel and aluminum, introduced in 2018, are defended on grounds of national security, given these metals' importance to defense industries.
Who's the Most Affected?
Following the expiration of a trade deal deadline on August 1, Trump announced tariffs on over 90 countries, including BRICS nations. Brazil faces a 50 percent tariff, while South Africa and China are subject to 30 percent.
Notable tariffs include 50% on steel and aluminum, 50% on copper (effective August 1) and 25% on imported cars and their parts.
Tariffs of up to 200 percent were threatened on pharmaceutical imports, though details remain unclear. Exemptions on products priced under $800 ended on August 29.
Country-Wise Tariffs
Most tariffs began on April 2, starting with a baseline 10 percent on all imports. Current rates include – Brazil: 50%, South Africa: 30%, Vietnam: 20%, Philippines: 19%, Japan: 15% and South Korea: 15%.
India faces an additional 25 percent tariff due to its Russian oil imports, raising its total to 50 percent.
Exceptions, Trade Deals
The European Union (EU) negotiated a deal before the deadline, agreeing to a 15 percent tariff on cars and certain goods from late July.
Some U.S. companies benefit from zero-duty access in EU markets. The United Kingdom agreed to the lowest U.S. tariff rate of 10 percent.
Impact on Markets
Tariff announcements triggered volatility in global stock markets, with many companies selling shares. Although markets have somewhat stabilised, fluctuations impact pensions, jobs and interest rates worldwide.
Usually stable, the U.S. dollar experienced notable dips. Organizations such as the International-Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) predict slower global economic growth due to tariffs.
The U.S. economy is expected to face significant challenges, despite recent 3 percent annual growth between April and June 2025.
Rising Costs for U.S. Consumers
Tariffs have contributed to rising inflation in the United States, increasing from 2.4 to 2.7 percent. Prices rose for clothing, coffee, toys and electronics.
Companies such as Adidas have confirmed price hikes due to tariffs. Over half of Adidas products originate from Vietnam and Indonesia, where tariffs range from 19 to 20 percent.
Nike warned tariffs could add $1 billion in costs, likely leading to higher prices for American shoppers.
Some companies are importing fewer foreign goods, tightening supply and pushing prices higher.
Even American products dependent on imported parts are affected. For example, automotive components cross multiple borders before final assembly in the United States, Mexico or Canada. New tariffs and stricter customs checks are slowing supply chains, adding delays and costs.