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US President Donald Trump signed an order imposing tariffs on imports from Canada, Mexico and China, citing a "major threat" by drugs and "illegal aliens". This move drew swift retaliation from its North American neighbours as a trade war erupted between longtime allies.
On Saturday, Mr Trump ordered 25 per cent tariffs on Canadian and Mexican imports along with 10 per cent on goods from China. While Canadian Prime Minister Justin Trudeau announced 25 per cent tariffs against Can$155 billion ($106 billion) worth of American goods, Mexican President Claudia Sheinbaum Pardo noted that "problems are not resolved by imposing tariffs, but by talking and dialoguing".
Meanwhile, China "firmly" opposed the latest US tariffs and is looking for "corresponding countermeasures".
What are tariffs?
Tariffs are basically the tax on imports. They are charged as a percentage of the price that buyer is paying to the foreign seller.
Collected by the agents of Customs and Border Protection at 328 ports of entry across the US, tariffs vary from one thing to another. For example, these are typically 2.5% on passenger cars and 6% on golf shoes, according to The Associated Press.
Also, tariffs are generally lower for nations that have trade agreements with the US, especially neighbours like Canada and Mexico. Several goods are allowed to move among these three countries tariff-free due to the US-Mexico-Canada trade agreement.
How does it work?
Usually, it is importers, like the American companies, which are required to pay tariffs, while this money goes directly to the US Treasury. In turn, these companies pass on the high cost to the customers by demanding high prices for their products.
Tariffs have a significant impact on other countries as they make their products costly and hard to sell abroad. At times, foreign companies are made to cut prices for their products and sacrifice profits to offset the tariffs. This is done to maintain their market share in the US.
Tariffs are mainly imposed to protect home-grown manufacturers as they raise the price on imports. Also, they serve as a medium to punish foreign countries if they commit unfair trade practices, such as subsidising their exporters.
During his presidential campaign, Trump said at a rally in Michigan that tariffs are the "greatest thing ever invented".
Trump, a proponent of tariffs, believes they can create more factory jobs, help the government in shrinking the federal deficit, and lower food prices, besides allowing the US government to subsidise childcare.