U.S. President Donald Trump has announced universal 10% tariffs. The World Trade Organization has sharply reduced its forecasts because of President Trump's tariffs. A new world order as Donald Trump announces sweeping new tariffs. President Trump has insisted that his implementation of new global tariffs is going very well.
You might have heard the word tariffs buzzing around in news feeds or on socials. That's because US President Donald Trump has raised taxes, called tariffs, on imports from a number of countries. My fellow Americans, this is Liberation Day. Waiting for a long time.
And people and markets around the world have been in shock. The Dow, the S&P 500 and the Nasdaq were all down more than 3% at one point. Global markets are also taking a hit and major indices in Europe are also down. So what are tariffs and how do they work? That is what we're explaining on this episode of What In The World from the BBC World Service. I'm Hannah Gelbart.
Now let's find out some more details. Here in the studio with me is BBC Business presenter Will Bain. Hello, welcome to the podcast. Thanks so much for having me. Busy day. Yes, I can imagine. So first of all, what are tariffs and how do they work in practice? They're simplest. They're attacks. They're attacks on things that are imported into your country and they work actually kind of quite simply. In essence...
As soon as a product is imported and it arrives at, say, an airport or a seaport, then you take it to a customs desk and the person who's importing it, so the company that's bringing that good in, whether it be a pair of trainers or some fruit or whatever, then has to pay that tariff to the customs officer and off they go with the product. But now Donald Trump has introduced tariffs on basically every country in the world. How could this work in practice?
You're right. They're used all around the world and often they're used for super sensible reasons, actually perfectly reasonable reasons. If you're a poorer country, a more developing economy and your neighbor is a bigger country with a bigger economy than you and you would like to manufacture tractors or something like that, then you might put tariffs on stopping your neighbor importing those tractors in so that you can help your industry get off the ground because you think it's
better for your country to have a bit more of that and your farmers be able to buy them cheaply. We saw a lot of this actually in Africa in 2018 when African countries were debating over the African Continental Free Trade Agreement. So been around for ages the idea of a tariff and like I say used often for
perfectly reasonable reasons. This time they're being used for a very specific reason and that's what's a bit different because President Trump, as I'm sure we're going to hear, has talked a lot about America being ripped off. He's felt that American consumers and American workers in particular, keenly, have been on the wrong end of what we call globalisation, so free trade around the world, parts and goods and people moving across borders.
But tariffs can actually make the prices go up for consumers. How does that work? Yeah, they can. Let's take just a random product, some trainers, for example. Lots of those get imported into the United States. Say our trainers cost $100. And say they've got a 10% tariff, which is the floor for all these tariffs. So the lowest set of tariffs you can have anywhere in the world is 10%. That would mean when it comes into that port or airport, as we were talking about, you take your pair of trainers that you want to buy, Mr. Shoppe,
to your customs officer, you pay your $100 to your supplier for those trainers, and you pay another $10 then on top of that to the government. Now, the idea from President Trump is that the American government keeps getting those $10 a go or whatever it is, and it uses them for the government coffers to do other things like cut
people's taxes at home and that kind of stuff as well. Who actually pays that additional $10 then? Well, you as a company pay it. You as the importer pay it to the government straight away. Now, how you get it back again is kind of up to you. Can you be more efficient? So can you save money in other bits of your business and just...
suck it up basically or more commonly do you raise your prices to cover that so you raise them if not even by the full ten dollars then buy more to kind of eat into that amount so it's kind of on you and you get to decide and that's kind of like the key bit now for the global economy we're seeing not just in America but right around the world how many companies will choose to raise their prices how many will find another way to do it tariffs mean that costs could go up for people buying things so why has he done that
The bet, long term, from the Trump administration, Hannah, is that there's another way of doing economics. That globalisation, what we were talking about before, so free movement of goods and people all around the world, different bits of stuff being made all around the world and then sold around at the cheapest price that's been with us really for everybody's listening's lifetime really, that's been the way to do things, that that hasn't worked, that that hasn't actually benefited a lot of people living in
particularly rural or former industrial heartlands in America, that those places have lost their factories, lost their jobs, lost their kind of reasons to exist. And he's trying to re-inject that. It's a kind of bet that globalization has gone a bit too far. Yes, it's meant cheap products, but actually the benefits of being able to buy cheaper products
he is saying, he is arguing, have been outweighed by the loss of a regular income, a loss of a kind of a reason to exist as a town and as a place and for employment back to the United States again. Now, at the moment, from the first term, it's not 100% clear how effective, it's certainly been effective in some places, but it's patchy. The evidence isn't exactly straight through and we're going to have to take a lot more time to see whether that really is the case. But that is certainly the political bet that the Trump administration is kind of making here. And where could it go wrong?
Well, it could go pretty easily wrong if that doesn't happen quickly. And often those things don't translate necessarily quickly, right? In terms of banking up enough money in the government coffers, that will take time from all of those imports. And getting those American manufacturers in particular, because we're talking here, should be clear as well, we're talking about physical things. These tariffs are only on stuff, right?
They're not on services, which America has a lot of. And actually, the American Association of Manufacturers reckon they haven't got enough people who work in manufacturing, people who are trained in manufacturing to pick up the slack here at the moment. So if that was to be the case...
you wouldn't have these things made as efficiently as perhaps they're being made somewhere else. You certainly wouldn't have them being made as cheaply. Let's be blunt about it. America is a much more expensive country to live than a lot of the places that we're talking about in terms of where they're going to get these tariffs. So in certainly the short and probably the medium term, actually,
It's much more expensive to make this thing. So someone's got to pay for that somewhere. It's not going to be the company because they'll go bankrupt. So it's going to have to be presumably higher prices. And then that can have a real knock on affecting the economy in two ways. One, inflation that we've talked about a lot. So the rate of prices going up, that annual rate of the prices go up by that can cause central banks around the world to look at things like our borrowing rates. So our ability to borrow money for money.
car loans or on our credit cards. And it can also have that freezing effect in the economy. So people go, gosh, that's quite expensive at the moment, isn't it? Maybe I'll wait. I won't buy that washing machine right now. I won't buy that new fridge that I was thinking about buying. I'll wait six months and see if it's a bit cheaper. And when you start seeing that, we call that slowing down in the economy. So people stop spending as much.
And then companies going, crikey, we're not selling as much stuff here. I'm going to have to lay off some staff or I'm certainly not going to expand my business and hire any more people anymore. So they can have a really big knock on effect on things like our employment and also the sort of health of our businesses or health of American businesses in this case.
But different countries around the world have been given different rates of tariffs. What are the highest ones and how are they calculated? It's all to do with what President Trump believes are trade imbalances. So there's this term called trade surplus. I'm sure people have heard this or a trade deficit. You're either in one or the other. That's basically how much you import as opposed to how much you export to somewhere else in the world. And President Trump...
with these tariffs has really kind of simplified that right down. He's gone, if we import more than we export to you, then you're going to have tariffs. And they sort of worked it out by the gap, by the scale of that gap between the two things. They've also complicatedly added in other things. So if they feel there's unfair subsidies to certain types of companies in a country, they've tacked on a bit more on the tariff. Will, thank you so much. Thanks so much for having me.
That's it for today. But if you want to find out more about what Donald Trump has been up to, we've got an episode on why he wants Greenland to be part of the United States. You can find that wherever you're listening to this. I'm Hannah Gelbart. This is What's in the World from the BBC World Service. And we'll see you next time.