Economic Tides: Understanding Tariffs, Balancing Protectionism and Global Trade  The recent announcement of new tariffs by the United States of America's President Donald Trump could be aimed at boosting the U.S. economy and addressing trade imbalances — but the ripple effects could shake the global market. As the world watches this bold move unfold, one question looms: Why do countries turn to tariffs, and what really happens when they do? Oscar Muwanga, Head of Markets at Standard Chartered Bank Uganda, shares some timely insights on how tariffs—while designed to protect local industries—can trigger a delicate chain reaction of rising prices, shrinking consumer choices, and escalating trade tensions, and therefore the need for a delicate balance.

A tariff is a tax placed on goods when they are brought into a country. Governments use tariffs for several reasons. They might want to protect their own industries from foreign competition. By making imported goods more expensive, local businesses can sell their products more easily. Tariffs can also be a way for governments to make money.

Tariffs have been around for a long time. In the past, they were a major source of income for many governments. Before income taxes became common, tariffs were one of the few ways for a government to raise money. Over time, countries have used tariffs not just to make money, but also to protect jobs and industries.

Who Gains and Who Loses?

When a country imposes a tariff, there are winners and losers. If Uganda puts a tariff on imported coffee, local coffee farmers might benefit. Their coffee becomes cheaper compared to the imported coffee, so they might sell more. This can help local farmers and workers keep their jobs.

However, there are also losers. Consumers, the people who buy coffee, might have to pay more. If imported coffee becomes more expensive, local sellers might raise their prices too. This means that everyone who buys coffee in Uganda could end up paying more.

Impact on Trade

When one country puts tariffs on goods from another country, it can lead to trade wars. A trade war happens when countries keep putting tariffs on each other’s goods. This can make it harder and more expensive for businesses to trade. For example, if Uganda puts a tariff on coffee from another country, that country might respond by putting a tariff on Ugandan goods, like tea or fish. This can hurt businesses in both countries.

Real-Life Examples

To make this clearer, let’s look at a real-life example. Imagine that Uganda imports a lot of sugar from Kenya. If Uganda puts a high tariff on Kenyan sugar, Ugandan sugar producers might benefit because their sugar will be cheaper than the imported sugar. But this could also mean that people in Uganda have to pay more for sugar. And if Kenya decides to put a tariff on Ugandan tea in response, tea farmers in Uganda might suffer.

Balancing the Effects

Governments need to think carefully about tariffs. While they can protect local jobs and industries, they can also make goods more expensive for everyone. This is a delicate balance. Too many tariffs can lead to higher prices and fewer choices for consumers. They can also lead to trade wars, which can hurt the economy.

Tariffs are a powerful tool that governments use to protect local industries and raise money. But they come with costs. While they can help local businesses and workers, they can also lead to higher prices and trade wars. Understanding how tariffs work and their impact can help us see the bigger picture of global trade and how it affects our daily lives.

In the end, the goal is to find a balance that protects local jobs and industries while keeping prices fair for consumers. This is not always easy, but it is important for the health of the economy. As we see with the example of coffee, sugar, and tea in Uganda, the effects of tariffs can be far-reaching, touching many aspects of our lives.