International trade: Everything you need to know
You may have heard people talking about trade and tariffs recently.If you've been asking yourself what on earth these words actually mean - we've got you covered.We asked BBC business reporter Peter Ruddick to explain what these things are and why they're important.And he gave us the lowdown on how trade affects our day to day lives. Read on to find out more...
What is trade?
"It's actually quite simple," says Peter. "All it is is buying and selling.""You might hear a sweet shop boss say 'Trade's good today!'"That means quite a lot of people are coming into the shop to buy sweets."But when it comes to conversations about trade that you might have seen in the news, it's on a bigger scale than the local sweet shop.International trade is trade between countries - buying and selling things from other parts of the world.
And that brings us on to Lego-fan Peter's next example."I love Lego. I buy it from my local toy shop."Lego is a Danish company, founded in the city of Billund in Denmark, and a lot of Lego is made in the country. Peter says this means Denmark and the UK have a trading relationship as the UK buys Lego from countries which produce the toy bricks, including Denmark.Trading means countries can access all sorts of goods and services they would not otherwise have, as well as creating stronger relationships with one another."There are hundreds of those trading relationships between the UK and Denmark," says Peter "and between all the countries around the world, buying and selling happening all day long."
What is a tariff?
"It's a charge, a tax, a payment that has to be paid when a product - like Lego, or a teddy bear, or sweets, or a games console - moves from one country to another."They're quite common and they've been around for a long time," says Peter, "they're charges that try to encourage people to buy local products."And if you're wondering how a tariff might make that happen, Peter's got the answer.
"You can buy a teddy from the UK - there are lots of British factories that make them", he explains.But teddies are also made in lots of other countries around the world. "The UK might choose to put a tariff - a charge or payment - on a teddy bear that comes from a different country to try and help the British factory. To encourage people to buy teddy bears from the UK."
How do tariffs affect people around world?
Let's go back to our teddy bear to answer this one."We've decided to put a charge on teddy bears that come from other parts of the world", Peter imagines, "to encourage people to buy the British-made one."Well there's a bit of a problem if we put that charge too high, because that can make teddy bears from everywhere a bit more expensive."That's because other countries might react to this tariff by putting their prices up.
"The British factory puts its prices up too, to try and compete - and suddenly you go to the shop and things have got more expensive."And there are other ways tariffs can affect how much things cost.Peter says that tariffs can be used like a weapon - and that if one country puts tariffs on another, that country might fight back with a tariff of their own.
"We make cars in UK - and cars are also made in Japan. We might put a tariff - a charge - on cars that come from Japan to help our British car-makers. "Japan might say 'You make a lot of salmon in the UK, we're going to put a charge on that'."And that's when those tariffs - those charges - go up and up and up." And Peter says this can mean that prices for go up in the shops, when all you meant to do was help the British factory."You've ended up hurting other companies, hurting your shoppers in the UK, when you didn't even mean to."
Winners and losers
When countries around the world start fighting back by putting up their tariffs it's not good for anyone. "People say there are no winners in these kinds of situations."Prices go up for everyone and it can be really difficult for businesses."
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