Tariff and Trade War

Suppose you are a shopkeeper and import cheap mobile phones from abroad. But the government says – “Every phone imported from abroad will have to be taxed ₹500 before selling it in India.” This tax is the tariff.

So what is Tariff and Trade War?

Tariff and Trade War means it’s a type of tax that a country charges on goods coming in from another country and the conflict that can arise when countries retaliate.

What could be its purpose?

1. To protect the country’s own companies
2. To increase government revenue
3. To put pressure on another country
4. To strengthen the domestic market

Why do countries trade?

Not every country can make everything.

1. India is good at technology, but imports oil
2. Japan makes cars, but imports food
3. America makes planes, but imports clothes
4. So countries buy goods from each other.

But when this trade harms the government or makes the country insecure, then Tariff and Trade War policies come into play.

How does a tariff work?

Suppose:

1. A car comes from China worth ₹10 lakh
2. The Indian government imposes a 25% tariff on it
3. Now that car will be sold for ₹12.5 lakh
4. People will say, “Why buy such an expensive car? Let’s buy a desi car.”

This benefits desi companies.

In simple terms:
Tariff and Trade War makes foreign goods expensive so that desi goods sell more.

When retaliation happens: Trade War begins
Now imagine, China felt bad. It said – “Okay, we also impose tariff on Indian goods.”

1. India imposed tariff on China
2. China also imposed tariff on India

This is what happens in a Tariff and Trade War – when two countries start harming each other in trade.

Disadvantages of Tariff and Trade War:

1. Consumers get expensive things
2. Companies face problems in exports
3. Relations between the two countries deteriorate
4. Uncertainty spreads in the market

Two types of tariff

Specific Tariff: A fixed amount. For example – ₹1000 tax on every refrigerator.
Ad-Valorem Tariff: According to percentage. For example, if something costs money, the country might add 10% extra as tax.

Why does the government impose tariff?

1. To increase government revenue
   The government can earn money by imposing Tariff and Trade War policies on every foreign product.
2. To save domestic companies
   Cheap foreign products can sink domestic business. Tariff provides them protection.
3. To protect consumers
   Products imported from some countries can be unsafe. Their sale is stopped by imposing tariff.
4. To exert political pressure
   If a country has to be forced to change a policy, then Tariff and Trade War is used. Trade war can also start from this.

Disadvantages of Tariff and Trade War

1. Inflation – Foreign products become expensive
2. Negligence of domestic companies – When there is no challenge, companies stop improving
3. Loss to rural areas – Cities benefit, but expensive products reach villages
4. Tariff and Trade War – When countries impose tariffs on each other, both suffer losses

A recent example
In 2025, US President Donald Trump:

1. They added a 25% tax on things coming in from Canada and Mexico.
2. They added a 10% tax on goods coming from China.

Objective?

1. Stop illegal immigration
2. Promote domestic manufacturing
3. Stop drug trafficking
4. Increase US income

This led to a situation like a Tariff and Trade War with some countries.

Lessons from history
In the olden days

1. People used to believe that having gold and silver meant being rich.
2. imports = loss to the country
3. Therefore tariffs and trade restrictions were common
   This was called Mercantilism.

Change came in 1776

1. Adam Smith said – “Every country should do the work in which it is expert”
2. David Ricardo strengthened it further – it was called Comparative Advantage
3. It means: Avoid tariffs, do free trade

But this idea did not work forever

1. The 1800s were a time of free trade
2. Tariffs returned after WW1
3. Free trade returned after WW2 – WTO was formed
4. But doubts about Tariff and Trade War and free trade have re-emerged since 2010

Conclusion: The game of Tariff and Trade War

Tariff:

• It is a tool
• It can be a way to change the policy of a country
• It supports domestic industries

But it also causes losses

Trade War:

1. It happens when countries start a trade war by imposing tariffs on each other
2. This ultimately harms both consumers and industries

The Solution:

Tariff and Trade War are some of the strongest tools countries use in the economy. Used correctly, they can protect a country, but used incorrectly, they can raise prices, hamper growth, and disrupt international relations.

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