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Tariffs reshape global trade dynamics

Tariffs, taxes or duties imposed by a government on imported or exported goods, have gained significant attention in recent months. For credit professionals, tariffs can influence trade credit terms, payment schedules and risk assessments. They may also impact the cost structure of international transactions, affecting the pricing and profitability of goods.

Tariffs, taxes or duties imposed by a government on imported or exported goods, have gained significant attention in recent months. For credit professionals, tariffs can influence trade credit terms, payment schedules and risk assessments. They may also impact the cost structure of international transactions, affecting the pricing and profitability of goods.

Why it matters: Understanding how tariffs influence global trade helps credit professionals manage risks and maintain healthy cash flow in cross-border transactions.

What do tariffs do?

A tariff is an economic tool used to regulate trade, generate revenue for governments and protect domestic industries from foreign competition. Tariffs can also play a role in negotiations, support national goals and help stabilize markets.

Tariffs come in two forms. One is a specific tariff that is levied as a fixed fee based on the type of item. The other is an ad-valorem tariff, which is levied based on the item’s value.

In recent years, tariffs have been used to increase government revenue. “The new administration is looking to create an external revenue service in addition to the internal revenue service,” Jay Tenney, managing director at Trade Risk Group (Irving, TX), said during an FCIB Global Expert Briefing.

Driven by the current U.S. trade deficit, the Trump Administration is proposing tariffs, which analysts suggest will “help reduce that gap by raising the prices of foreign goods and encouraging Americans to purchase domestic alternatives,” reads an NBC article. “In some cases, even the threat of tariffs might influence manufacturers to consider relocating operations elsewhere, although these operations may not necessarily move to the U.S.”

Tariffs are also used in negotiations to encourage other countries to adjust their trade policies. Again last week, President Donald Trump warned that the U.S. will impose 100% tariffs against the BRICS countries if they take steps to replace the U.S. dollar as the world’s global reserve currency. BRICS is a group of ten countries: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates. While the proposed 100% tariff has not moved forward, it is still expected that the Trump Administration’s 25% tariff on Mexican and Canadian goods will take effect on Saturday, February 1.

Yes, but: It’s important to note that tariffs can result in various outcomes, including adjustments in pricing and changes in trade dynamics. One potential consequence is the effect on consumer prices. “While Trump claims foreign exporters pay the tariffs, U.S. consumers may share in the costs, as retailers could adjust their prices accordingly,” reads a CNN Business article.

Developing countries often have higher tariffs than wealthier countries because they may need to protect their developing industries or may be more reliant upon tariffs as a source of government revenue. Additionally, tariffs can lead to reciprocal measures by other countries. Reciprocal tariffs can lead to trade wars, which are economic conflicts resulting from countries imposing tariffs against each other.

The bottom line: While tariffs have been used in global trade for a long time, the debate over their effectiveness continues, with varying perspectives on their overall impact. By staying informed on global market changes, such as tariffs, credit professionals can better manage global trade and political risk.

Jamilex Gotay, senior editorial associate

Jamilex Gotay, a Towson University alum, holds a B.S. in English. Her creative writing background fuels her success as a writer, journalist and award-winning poet. Fluent in English and Spanish, with intermediate French skills, she’s passionate about travel and forging connections. When not crafting her latest B2B credit story, she enjoys quality time with loved ones, outdoor pursuits and creative activities.