• US President Donald Trump’s announcement of a 25 per cent tariff on auto imports rippled throughout the world on March 27.

• Global carmakers warned of immediate price hikes and dealers raised fears of job losses in big auto-exporting countries, many of which are US allies.

• The new levies are a precursor to another expected round of wide-ranging US tariffs to be levied in April. 

• But the auto tariffs alone could add thousands of dollars to the average cost of a vehicle in the US and further dampen demand at a time when the sector is already struggling to manage the transition to electric cars. 

• The United States is the world’s largest importer of cars, most from Japan, South Korea and Germany, along with vehicles from neighbours Canada and Mexico.

• Nearly half of all cars sold in the US last year were imported, according to reports.

• The White House claims that the move would foster domestic manufacturing. The US expects to raise $100 billion in revenue annually.

• Foreign leaders were quick to criticise the tariffs, a sign that Trump could be intensifying a broader trade war that could damage growth worldwide.

• The auto tariffs are part of a broader reshaping of global relations by Trump, who plans to impose what he calls reciprocal taxes on April 2 that would match the tariffs, sales taxes charged by other nations.

• Trump has already placed a 20 per cent import tax on all imports from China for its role in the production of fentanyl. 

• He similarly placed 25 per cent tariffs on Mexico and Canada, with a lower 10 per cent tax on Canadian energy products. 

• Trump has also imposed 25 per cent tariffs on all steel and aluminum imports, removing the exemptions from his earlier 2018 taxes on the metals. He also plans tariffs on computer chips, pharmaceutical drugs, lumber and copper.

• His taxes risk igniting a broader global trade war with escalating retaliations that could crush global trade, potentially hurting economic growth while raising prices for families and businesses as some of the costs of the taxes get passed along by importers. 

What is tariff?

• The word tariff has been catapulted from the business pages to the headlines over the last few months, as major economies impose or threaten them on other nations. 

• But tariffs are not just a blunt weapon to be used in geopolitical brinkmanship. They can, if used effectively, help poorer countries develop their economies.

• A tariff or duty (the words are used interchangeably) is a tax levied by governments on imported products. Different tariffs are applied on different products by different countries.

• The tariff, along with the other assessments, is collected at the time of customs clearance in the foreign port.

• The UN defines tariffs as customs duties on merchandise imports, levied either on a percentage of value or on a specific basis.

• Historically, tariffs were a major source of revenue for many countries and were often the primary source of federal revenue through the late 19th century. Today, other taxes account for most government revenue in developed countries.

• Tariffs are now typically used selectively to protect certain domestic industries, advance foreign policy goals, or as negotiating leverage in trade negotiations.

• Tariffs are used widely, but they are imposed following rules that have been negotiated within the World Trade Organisation (WTO) or regional organisations.

• Many important actors in global trade, such as the United States, the European Union and China, are imposing tariffs or measures that are not always in line with their commitments in the WTO.

• When Member States make unilateral decisions, without going through the WTO or UN System, it can create uncertainty, which may end up creating a slowdown in investment decisions in the private sector, in trade, economic growth and job creation.

• There have always been differences among countries, with certain sectors more affected by changes than others, and economic conditions can require certain kind of interventions.

• Developed countries often use tariffs as part of broader economic policies aimed at protecting specific industries or responding to international trade dynamics. In contrast, developing countries may use tariffs more broadly to protect nascent industries and support economic development.

• Experts say that tariffs themselves are not necessarily a problem. The issue is the uncertainty that results from big economic players ripping up the playbook of international trade rules.

• One way of helping an industry develop and grow is by protecting it, through tariffs, from foreign competition. The downside is that production of those goods for the domestic market is more expensive, and you may also deter competition.

• Another important point is governments need revenue. Tariffs are a tax, and a tax is income that a government can spend on social spending, health, education or infrastructure. But again, this means higher costs on imported goods for consumers.

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