The tariffs are here.
On Saturday, President Donald Trump fulfilled a campaign promise, signing executive orders imposing 25% tariffs on imports from Canada and Mexico (with a partial exception for Canadian energy products) and a 10% tariff on Chinese goods.
Although Mexico and Canada have since negotiated monthlong delays on their start dates, you can’t understate the potential impact of these moves: Those three countries account for over 40% of products imported into the U.S.
The initial reactions from world leaders, the U.S. stock market, and the media were… not positive. Leaders from Canada, Mexico, and China expressed deep concerns. Major U.S. stock indexes fell. And for the second time in three days, the editorial board of the Wall Street Journal published a piece calling it “The Dumbest Trade War.”
With so much action on the tariffs front, we figured it was a good moment to refresh on some basics, starting with: What exactly is a tariff, anyway?
Simply put: It’s a tax imposed on imported goods — usually to protect local industries and raise revenue for the government that’s importing. It makes foreign products more expensive, which influences what people buy.
Though many economists doubt the efficacy of tariffs, conceptually, there are benefits. They give U.S. businesses that make the same goods a potential price advantage. They bring in revenue for the government to use for public services and projects.
And, as Trump has already demonstrated, they can be used as a bargaining chip in trade and political negotiations — encouraging companies to invest in the U.S., forcing them lower their own tariffs, or catalyzing change on border policy and enforcement.
On the other hand, when imported goods cost more, it limits product variety and availability (typically hitting lower-income consumers the hardest).
And other countries often respond to tariffs by imposing their own, which can lead to a trade war that damages both economies — and ultimately hurts consumers in both countries. (This appears to be the direction we’re headed in with China.) Plus, they can have a distorting effect on business. By protecting U.S. industries from competition, tariffs can make them less efficient and innovative in the long run.
So what? Though the U.S. government has deployed tariffs for decades, Trump’s strategy of ratcheting them up is unpopular among many economists, business leaders, and politicians, not to mention consumers. “Almost no one wants these tariffs — except Donald Trump,” Heather Long, a columnist at the Washington Post, said Friday. For now, it appears Trump’s approval is the only one that matters.
Related Reading
• Trump Tariffs: Tracking the Economic Impact of the Trump Trade War (The Tax Foundation)
• What Are Tariffs? (The Council on Foreign Relations)
• The Tariff Announcement That Shocked Financial Markets (Bloomberg’s Odd Lots podcast)
photo credit: Kalyakan/Adobe Stock
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