Why Do Tariffs Shake the Economy?

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Why Do Tariffs Shake the Economy?

• What’s Going On

  • Last week, President Donald Trump announced his “reciprocal tariff” policy — meaning the U.S. would match any country’s import taxes on American goods with an equal tariff on theirs.

  • The announcement made waves, spooking global markets and prompting economists and world leaders to raise alarms about the ripple effects on trade, inflation, and supply chains.

• A Quick Explainer

  • What’s a Tariff, Anyway?
    A tariff is a tax on imported goods. Governments use them to make foreign products and manufacturing more expensive, and domestic ones more competitive.

  • What’s a “Reciprocal Tariff” Policy?
    It means if another country charges a 10% tax on American cars, the U.S. would respond by charging a 10% tax on their cars. Trump argues this makes trade “fair”, but critics say it risks triggering trade wars.

  • Why Does the U.S. Have a Trade Deficit?
    The U.S. imports more than it exports, especially goods like electronics, cars, and oil. This trade gap (aka "trade deficit") has grown for decades. In 2023, it reached around $773 billion.

  • How Do Tariffs Affect the Economy?
    Tariffs can raise prices for consumers, disrupt supply chains, and make international products less available. Businesses that rely on imports, from automakers to farmers, often feel the pinch.

  • Why Did Stock Markets React So Fast?
    Markets don’t like uncertainty. Tariff talk signals potential instability in global trade. If countries retaliate or restrict exports, it can lead to inflation, lower corporate profits, and economic slowdowns — all of which shake investor confidence and make them sell their stocks.

  • Fun Fact:
    In 1930, the U.S. passed the Smoot-Hawley Tariff Act, which raised tariffs on over 20,000 imports. Many economists believe it made the Great Depression worse by stifling international trade.

• What This Means For You

  • Whether you buy electronics, drive a car, or eat food grown in another country — tariffs can raise prices for everyday people like you.

  • Understanding how global trade works isn’t just for economists. When leaders propose sweeping trade policies, it helps to know how they ripple through your wallet, your job, and the economy at large.

  Why did global stock markets react to Trump’s tariff announcement?

  Excitement about free trade Uncertainty about global trade Lower interest rates High corporate profits

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World News
Global News in 60 Seconds

In the last 3 days…

• 🇦🇺 Australian Dollar Hits Five-Year Low Following Tariff Announcements
  The Australian stock market saw a sharp decline, with the ASX 200 index dropping 6.02% at opening, erasing approximately $100 billion in value. The Australian dollar also fell below 60 US cents, a level not seen consistently since 2003.

• 🇪🇺 European Leaders Condemn U.S. Tariffs; Consider Retaliation
  French President Emmanuel Macron labeled the U.S. tariffs as "brutal and unfounded," suggesting possible retaliation, including suspending French investments in the U.S. and introducing a digital services tax targeting U.S. tech firms. Other European leaders echoed similar sentiments.

• 🇮🇱 Israel Launches Ground Offensive in Gaza's Shuja'iyya Neighborhood

  On April 4 the Israel Defense Forces (IDF) initiated a ground offensive into the Shuja'iyya neighborhood of Gaza City. This operation is part of Israel's renewed military efforts following the collapse of a ceasefire agreement on March 18. The IDF reported targeting Hamas infrastructure and operatives, aiming to weaken the group's military capabilities. The offensive has led to significant casualties and displacement among Palestinian civilians.

• 🇱🇸 Lesotho's Garment Industry Faces Crisis Amid U.S. Tariffs

  Lesotho's garment sector, a cornerstone of its economy, is under severe threat due to the recent 50% tariffs by U.S. President Donald Trump. The nation, which exported $237 million in goods to the U.S. in 2024 under the African Growth and Opportunity Act (AGOA), relies heavily on this industry, employing around 30,000 workers, predominantly women. These tariffs jeopardize Lesotho's economic stability and the livelihoods of many, as the country faces potential job losses and economic downturn.

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