What is a Tariff? CF Summary™

You've probably heard president Donald J. Trump barking about tariffs these days.

Arm yourself for your next economic discussion with our tariff overview.

Key Economics Terms Series 101

So what is a tariff?!?!

Tariffs are an economic tool that sovereign leaders use to attempt to control the flow of trade in and out of their geographic regions. It's a way for governments or leaders to say "I’m the boss" to the market's players. Most economists generally agree that tariffs disrupt the free and open exchange of goods with government imposed interference.

Tariff: A government imposed fee on imported goods. So let's say China exports a TV to the U.S. for $100. Trump imposes a tariff of $25, so now the TV costs $125 to the American consumer. Normally decreases demand of a product or service.

CF Pro Tip™: Tariffs can also be placed on products being exported out of a territory.

Two-part Tariff: When a business or firm charges a one-time fee [i.e. country club initiation] to its customers in addition to any recurring charges. Typically used by companies in upmarket positions to add a barrier to entry to consumers and to capture more of the consumer’s surplus that they otherwise would not be able to.

CF Pro Tip™: The two-part tariff is a microeconomic concept concerning firm behavior, much different than tariffs in general, which is a macroeconomic concept.

This article is not a rendering of economic advice. Please consult your personal financial advisor for economic analysis specific to your situation. Cedarmill Financial is a registered investment advisor firm in the state of Missouri.