Over the past few weeks, President Donald Trump has announced a series of tariff policies. This issued a statement of shifts that led to growing concerns about global economic instability.
With Trump’s tariffs affecting almost every country, many conditions are being cast to explain potential consequences.
From the trade wars to the decline in stock markets, this article explains what these key terms mean, including illustrations and simple, things that could become more important in the coming months.
1. Customs
Customs duties are merely taxes imposed on borders by one country on foreign goods. They usually aim to protect local businesses from foreign competition.
Mutual tariffs have now defined Trump’s trade policy, which imposed the same tariffs on other countries that these countries place on the United States. It’s like saying, “If you charge us, we will charge you the same.” Retaliatory tariffs are taxes imposed by the state on foreign imports to counter the imposition of similar taxes. It’s like saying, “If you make it difficult for us, we’ll do the same to you.”
2. Trade wars
A trade war occurs, for example, when two countries challenge trade practices and place additional tariffs on goods from another country that one country believes to be engaged in unfair trade practices. Other countries retaliate with tariffs, and this tat-for-for-tat continues to expand into a trade war.
It’s like an economic tug of war that keeps both sides tug stronger than finding a way to agree.
A good example is the US-China trade war. This has been in effect since 2018, when the US first placed tariffs on Chinese products. More recently, speeds between Washington and Beijing have increased by 145% in China’s tariffs.
3. Trade deficits and surplus
A trade deficit occurs when a country purchases (imports) more goods than it sells (exports). This means that the demand for foreign goods is greater than the supply of their own products.
For example, the US has a trade deficit with China. This is because they buy more products, such as electronics and clothing, than they sell from China.
Trade surplus is against it. This happens when the country sells more products than it buys.
For example, the US has a trade surplus with the Netherlands. Because they sell more products, such as machinery and agricultural products, to the Netherlands.
4. Subsidies
Subsidies are financial support or funds given by the government to support local businesses and industries, making the product cheaper or more competitive.
For example, following Trump’s 25% tariff on all foreign cars and auto parts, South Korea has announced emergency assistance for the automotive sector by increasing subsidies for electric vehicles and increasing demand.
5. Stock market
The stock market is where stocks in companies and other financial instruments are bought and sold. For example, if you buy stocks on Amazon, the value of the stock can rise or fall if you own a portion of the company. This means you can either make or lose money.
An index is a method of measuring how a group of stocks works.
In the US, the three biggest indicators are:
The S&P 500 tracks 500 big companies in the US. NASDAQ Composite mainly tracks high-tech stocks such as Amazon and Google. Dow Jones Industrial Average tracks 30 big companies, including Coca-Cola and Walmart.
6. FRB
The Federal Reserve (short for the Federal Reserve) is the US Central Bank.
This helps to control the country’s money supply, set interest rates, and stabilize the economy.
7. interest rate
Interest rates are the cost of borrowing money, usually expressed as a percentage.
For example, if the Fed raises interest rates, borrowing money becomes more expensive, and if the interest rates are lowered, borrowing money becomes cheaper.
Interest rates rise when central banks want to slow inflation or cool down the overheating economy.
8. Inflation
Inflation measures how quickly prices rise over time. This means that money won’t buy as much as it used to be.
For example, if the sandwich costs $2.50 a year ago and the same sandwich costs $3.00, the sandwich has a 20% inflation rate.
Inflation can occur if the demand for a product is higher than the supply or if it costs much more to make the product. It can also happen when the economy has too much money, like when the country prints more cash.
The Fed is trying to stabilize inflation. If prices are too fast, it can damage the economy by making goods and services expensive. The Fed can help you change interest rates and manage prices.
9. exchange rate
Exchange rates are the value of a country’s money compared to the money in one country.
For example, one US dollar would earn around 0.90 euros.
Exchange rates are important as they affect the cost of buying and selling of goods between countries.
Strong currencies make imports cheaper and exports more expensive, while lower currencies make exports cheaper and imports more expensive. Prices also affect travel, investment and global business.
10. Market trends
Market trends are the general direction in which prices and markets move over time.
They help investors and businesses understand what is happening in the economy.
Economists use terms such as the “bug” and “bear” market to refer to these trends.
Bull markets – When the economy is on track, prices go up and people are confident. Consider the bull is being pushed up by horns (prices rise). Consider a bear swipe down with its foot (prices drop).
The economist uses an equation based on the S&P 500 to determine whether we are in the bull or bear market, bringing a 20% change from the last high as the main threshold.
11. debt
Debt is money the government owes to another person, usually with interest and has signed a contract to pay it back later.
For example, if the US needs money for healthcare, defense, etc., they may borrow from China by selling US Treasury bonds.
Bonds are like loans where you later lend money in exchange for interest and repayment.
China has committed to buying these bonds, lending money to the US and paying it back with interest over time. This will allow the US to make money quickly without increasing taxes or reducing spending.
As of March 2025, US government bonds are approximately $36.56 trillion. This substantial debt level has sparked concerns about the country’s financial health and ability to manage the future financial obligations.
12. Trade Agreement
A trade agreement is a national transaction that facilitates the purchase and sale of goods.
for example:
Free Trade Agreements (FTAs) are contracts between two or more countries that remove trade barriers such as tariffs and make it easier for goods and services to move between them. A bilateral trade agreement is a broader transaction between two countries, including rules that help trade easier.
13. Gross domestic product (GDP)
GDP is the total amount of all goods and services produced domestically over a specific period, typically over a year or quarter. It is used to measure the size and health of a country’s economy.
14. recession
A recession is when the economy weakens for a certain period of time.
A recession is usually identified as a decline in the country’s GDP for two quarters (six months).
During the recession, some things happen:
People lose their jobs and people lose less stock markets.
Since 1950, the US has had 11 recessions.
15. Types of trade policy
Trade policy refers to the government’s policies that govern the exchange of goods and services between countries.
Broadly speaking, there are two oppositions about how a country should engage in global trade.
Protectionism – focuses on trade restrictions and protecting local industries. Some tools for enacting protectionist policies are tariffs, subsidies and import allocations. This sets a limit on the amount of product imported. Free Trade – Improves openness by making it easier for countries to trade goods and services. Free trade is generally suitable for global economic growth, lower consumer prices, and access to a wide range of products and services.
Source link
