Since Donald Trump's inauguration in January, talk of tariffs has been pretty much non-stop. 

The eventual geographical targets, scale and impact of Trump's tariffs remain unclear and are likely to shift throughout his presidency, but the direction of travel is clear.

The president wants to make it more expensive for US citizens and businesses to buy overseas goods. 

This month Trump introduced 25 per cent import taxes on all global steel and aluminium entering the US. This will affect some businesses in Britain. 

He has already imposed 25 per cent tariffs on other imports from Mexico and Canada, with some exemptions, and a 20 per cent levy on Chinese goods.

And in an example of how tit-for-tat trade wars can escalate, the US president has threatened to impose a 200 per cent tariff on alcohol from EU countries unless the bloc scraps its 'nasty' 50 per cent tariff on whisky. 

While the scope for all future tariffs remains unknown, it is clear is they will play a larger role in all our daily lives over the coming years. 

This is Money explains what tariffs are, how they work and how they could affect the cost of living, savings, investments and pensions of people in Britain. 

What are tariffs?

Tariffs are taxes countries apply to products or materials imported into their own country. 

Taking the US example, tariff-hit products being imported from overseas would become more expensive in the US. This would, in theory, drive consumers to buy more products domestically which originate from the US. 

At the same time, the US would rake in more tax coffers on imports from overseas.  

This is where Trump's 'Make America Great Again' mantra comes into play. Tariffs are part of his plan to boost tax revenue, grow the domestic US economy and support US manufacturing and jobs.  

If, for instance, a business in Britain making steel wanted to sell its steel in another country, like the US, it would need to be very mindful of tariffs. 

Tariffs can make a big difference to a company's bottom line or an entire sector's. If tariffs are too high, it might become unviable to continue trading in an overseas country. 

How do they work?

In terms if the nitty-gritty of how tariffs work, tariffs tend to be paid by those who import the goods - effectively creating an extra tax on them. 

So while Trump's tariffs will be imposed on goods from other countries, it won't be those producing them who pay, it will be those in the US buying them who incur the tariff.

Typically, companies or retailers having to pay tariffs will not simply just absorb the extra cost. They are likely to pass on extra costs from materials or hike their prices, leading to higher prices for consumers. 

Almost all tariffs are set as a percentage of the value of the goods in question. 

For instance, the current British tariff on cars is 10 per cent, subject to some exception,. So, if a car imported from outside Britain costs £10,000, the tariff would be £1,000. 

Some agricultural tariffs are, however, set in relation to the weight of the product, rather than the value. 

The ability of governments to set tariffs is, to some extent, restricted by international commitments.

'Most major trading nations are members of the World Trade Organisation (WTO) and so are subject to the obligations in its General Agreement on Tariffs and Trade', the Institute for Government said.

WTO members must charge all other members the same tariff unless they have a free-trade agreement (FTA) with them. Currently, the US imports around $3trillion worth of goods a year.

What has Trump done to date?

There's a lot of to-ing and fro-ing when it comes to Trump's tariffs.

Initially, Trump imposed tariffs on countries with whom he signed FTAs during his first term of office, notably Mexico and Canada. However, tariffs on certain products coming from Canada and Mexico have been paused until next month. 

Trump has also imposed a 20 per cent levy on Chinese goods and Beijing has already retaliated with counter tariffs. 

As of yet, Trump has not announced targeted tariffs on either Britain or the EU. But both are, in principle, affected by his decision to impose a 25 per cent additional tariff on all steel and aluminum products. 

Crucially, the steel and aluminum tariffs cover not just raw material trade with the US but products made with these metals.  

Chairman of the Business and Trade Committee Liam Byrne said Trump's tariffs were 'double trouble' for Britain.

Byrne suggested that in addition to hitting hundreds of millions of pounds worth of steel and aluminum sales to the US, the tariffs would 'also risk swamping the UK with over-subsidised Chinese steel diverted from America'. 

Fears are also mounting that Trump will impose tariffs on whisky from Britain, which would hurt Scotland's drinks industry.  

Keir Starmer claimed it was 'pragmatic' not to hit back at the US and stated that Britain was discussing the possibility of a wider scope trade deal with the US which would remove tariffs as part of an agreement. 

Will tariffs make life more expensive?

In its forecasts published this week, the Organisation for Economic Co-operation and Development (OECD) claimed Trump's tariffs would lead to higher inflation and hit global growth. 

The OECD, based in Paris, said more tariffs and 'increased geopolitical and policy uncertainty' were hitting investment and household spending. It has downgraded world gross domestic product projections for this year and next. 

In Britain the outlook has also been downgraded, largely because of the stagnant growth performance since Labour took office in July. 

For Britain, the OECD forecast for 2025 was downgraded from 1.7 per cent to 1.4 per cent and for next year from 1.3 per cent to 1.2 per cent. 

What could go up in price?

Some economists think tariffs will raise costs in the US, igniting a wave of inflation that will keep interest rates higher for longer.

The Bank of England will need to figure out whether to continue cutting interest rates or to pause and wait while the situation with tariffs becomes clearer. 

In November, the Bank of England said it believed inflation in Britain was largely supressed and interest rates were on course to fall below 4 per cent this year. 

Today, however, the Bank of England, like the US Federal Reserve, is more cautious regarding its predictions for inflation. 

The pound has weakened against the US dollar, meaning a British household will find their money does not stretch as far as it did previously. It's more expensive to go on holiday to the US than previously. 

Britain also imports a large volume of machinery and transport from the US. So, prices for certain engines, cars or aircraft could go up. 

Britain also imports large quantities of vitamins and antibiotics from the US, and, if tariffs are imposed, higher costs could be passed to consumers.  

However, Trump is focused on goods rather than services which is potentially helpful for Britain. Over three-quarters of Britain's economy is based on the services sector, meaning the impact of trade tariffs at the checkouts could be limited. 

Will tariffs affect savings, investments and pensions? 

In both the short and longer term, Trump's tariffs are likely to have an impact on consumers' investments, pensions and savings in Britain. 

If interest rates go up, interest on people's savings rates would increase. However, if inflation rises simultaneously, the value of those savings would be diminished. 

On top of that, a lot of people in Britain have workplace or private pensions with a sizeable portion of their holdings tied up in US stocks and shares. 

People with a stocks and shares Isa invested in funds may also have a hefty slice of their money tied up in US-based entities. 

While the longer-term picture remains unclear, the stock market has already been impacted by Trump's tariffs. 

Speaking to This is Money, Dan Coatsworth, investment analyst at AJ Bell, said: 'Uncertainty around Trump’s tariffs have caused stock markets around the world to wobble, particularly in the US where investors now fear his policies could put the country into recession. 

'That’s negative for UK investors who have exposure to US shares in their ISA or pension.'

He added: 'We’ve already seen share prices fall in popular names like Nvidia, Amazon and Tesla, and that could put a dent in investors’ wealth. 

'It’s not just holders of individual shares nursing a bruise, these stocks are likely to feature in workplace pension schemes given they’ve been key drivers for the US market in recent years.'

Myron Jobson, senior personal finance analyst at Interactive Investor, told This is Money: 'Donald Trump’s tariff war could have far-reaching consequences for UK savers and investors, even though none have been levied on the UK. 

'Tariffs tend to increase the cost of goods, which can stoke inflation and put pressure on central banks to hike interest rates. 

'For investors with exposure to US equities - either directly or through pension funds and Isas - this could translate into market turbulence.'

He added: 'For UK-based investors, the knock-on effects could be twofold. 

'Firstly, any sell-off in US stocks - given their weight in global indices - could drag down the performance of UK-managed funds with heavy US exposure. 

'Secondly, if tariffs contribute to higher inflation, central banks may be forced to tighten monetary policy, which can weigh on bonds and increase borrowing costs.

'This could impact everything from mortgage rates to corporate investment, potentially slowing economic growth.

'That said, long-term investors should resist the urge to make knee-jerk decisions based on short-term market movements.' 

Ed Monk, associate director at Fidelity International, said: 'One consequence of Trump’s imposition of trade tariffs could be price inflation in the US. 

'American consumers will have to meet the extra cost of tariffs for any goods affected, or else buy from domestic producers without the competition of lower-cost overseas sellers. 

'Either way they are likely to end up paying more. This has the potential to spill over to other markets, including adding upward pressure to interest rates globally.

'That has the potential to reduce the appeal of fixed-income assets like bonds, which will see the income they pay eroded in real terms. 

'A silver lining could be higher rates on annuities which are backed by government bonds, the yield on which would rise if bond prices fall.

'More generally, there is a risk that tariffs undermine confidence of businesses globally to invest and put downward pressure on growth in the process. This could weigh on markets.'

It is not all bad news though. Trump's focus on cutting corporate taxes and upping deregulation could give a boost to sectors like finance, defence and energy.