On Wednesday (April 2), Donald Trump announced a swath of economic tariffs on countries around the globe. “My fellow Americans, this is Liberation Day,” the President said in a speech delivered from the White House Rose Garden, arguing that the move would ‘liberate’ the US from dependence on foreign goods. “April 2, 2025, will forever be remembered as the day American industry was reborn, the day America’s destiny was reclaimed and the day that we began to make America wealthy again.”

The decision has been extremely controversial, with stock markets around the world plummeting in response to the news. But what exactly is a tariff, and how will the new measures impact ordinary people? Below, we’ve broken down everything you need to know about Trump’s new tariffs.

WHAT IS A TARIFF?

Don’t worry, it’s not too late to ask what a tariff actually is. Put simply, tariffs are border taxes placed on imported goods. When a country imports goods, it has to pay a tariff to the customs agency of the country that levies them. Typically, the tariff is charged as a percentage of a product’s value: so a tariff of 10 per cent on a product worth £100 would command a £10 charge upon entry into the country that is importing the product in question.

As well as finished goods, tariffs are levied on components and raw materials, which means manufacturers are set to face steeper costs.

Tariffs provide an incentive for importers to buy domestic, tariff-free equivalents to the goods they would usually import, although this isn’t always possible.

The introduction of tariffs by one country can often lead to other countries retaliating. Notably, today (April 4) China announced a 34 per cent tariff on US goods following Trump announcing a 54 per cent tariff on Chinese goods on Wednesday, one of the highest rates for any country.

WHY HAS TRUMP DONE THIS? 

Since the 1980s, Trump has argued that tariffs could be used to boost the US economy. The US is the largest goods importer in the world, importing $3 trillion worth of products in 2023. Relatedly, it also has the largest trade deficit (when imports exceed exports) in the world, worth $1 trillion.

Trump has long argued that tariffs would encourage US consumers to buy more American goods and that the large trade deficit is a result of “unfair” practices carried out by the US’s trading partners. “For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike,” he said on Wednesday.

Trump also believes that the tariffs could generate more revenue for the federal budget which would offset the impact of his tax-cutting proposals. However, it’s unlikely this will work: according to a Yale University Budget Lab analysis, if all tariffs to date remain in place for the next decade, they would raise $2.5 trillion – but the proposed tax cuts are expected to cost at least $4 trillion over a decade.

HOW WILL THIS IMPACT THE US?

Initially, Trump’s plans could push up US living costs, as it’s likely companies will pass on the increased cost of imported goods onto their customers. The new tariffs could also prompt a reduction in imports; and with fewer products available, prices will likely go up. Cars, lumber used to build houses, beer, whisky, tequila, and avocados are among the goods that could become more expensive in the US.

HOW WILL THIS IMPACT THE UK?

Trump has imposed a 10 per cent tariff on all UK imports. Once tariffs are in place, import costs may rise for UK firms, which could mean higher prices for consumers – but it’s also possible that prices could drop if firms that usually sell to the US decide to send their goods to the UK instead.

It’s possible the changes could impact the UK jobs market too: if prices do rise, workers might ask for pay rises to compensate; and if UK companies feel their profits are being squeezed, job cuts could follow. 

UK interest rates could also be impacted by Trump’s new taxes. At present, interest rates currently stand at 4.5 per cent. While economists had expected the rate to fall this year, if inflation rises because of higher prices, rates might stay higher for longer.

It’s still unclear exactly how the tariffs will impact the average person in the UK – only time will tell. Keir Starmer responded to the tariff news on Wednesday: “I want to be crystal clear – we are prepared. Indeed, one of the great strengths of this nation is our ability to keep a cool head.”

HOW WILL THIS IMPACT THE WORLD?

The news about Trump’s tariffs has already rocked the global economy; after Trump announced the changes, about $2.5 trillion was wiped off Wall Street and share prices in other financial centres across the globe. Some economists are now fearing a recession. 

World leaders have widely slated the decision. China condemned the “unilateral bullying” practices of the US and have imposed a retaliatory 34 per cent tariff on US goods, while the EU said it was also drawing up countermeasures.