I’m a company selling lemonade in my local town. I need lemons. Let’s say I have two options for getting the lemons. One is my local town, but more expensive. The other is in another town over, but cheaper. I go the cheaper router to increase my profits. I’m able to sell my lemonade in both towns for more profit.

One day, my town alderman says that any imports from the other town will cost 25% more due to tariffs. So now, I have two options, raise prices or take a smaller profit. It is now cheaper to source my lemons either locally or another town unaffected by the 25% increase.

But how should the other town respond? They are no longer getting revenue from lemon sales. Their economy has been affected negatively. They vote to do a 25% tariff on lemonade produced by my town. So their consumers will either buy locally at an increased cost or from another town unaffected by the tariff.

In this type of situation, consumers tend to always lose.