President Trump fulfilled his campaign pledge by implementing tariffs on imports from the U.S.’s three main suppliers: Canada, China, and Mexico.
Trump imposed 25% tariffs on Mexican and Canadian imports (Canadian energy is subject to a 10% tariff) and 10% on Chinese goods. He signed an executive order titled: “Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border.”
Trump addressed the tariffs on Truth Social, stating the decision aimed to protect Americans from the threats posed by illegal immigration and deadly drugs, including fentanyl.
In another post, Trump included previous statements where he promised these tariffs.
While tariffs have served as tools for policymakers, consumers and economists harbor concerns about the potential inflationary impact of Trump’s early-term tariffs on goods and services. Many voters cited grocery prices and affordability as key election concerns, raising fears that these tariffs could increase the cost of groceries, gas, energy, and automobiles.
Given the increased focus on tariffs and discussions about their potential effects, here’s an explanation of these government-imposed taxes and Trump’s rationale for them.
What are tariffs?
Import tariffs, the type Trump implemented, are taxes on goods imported from other countries. Export tariffs, taxes on goods leaving a country, are far less common.
Various tariff types exist, and Trump’s are ad valorem tariffs—taxes calculated as a percentage of the product’s value.
Who pays for tariffs?
Domestic importers typically pay tariffs to U.S. Customs and Border Protection. However, economists often note that consumers bear a portion of the cost. Importers might raise prices to offset the added tax.
“Generally, it will increase import costs,” says Felix Tintelnot, an associate economics professor at Duke University. “However, foreign exporters might lower prices to remain competitive.”
For instance, given that Mexico is a major avocado exporter, Trump’s tariffs could lead to higher avocado prices in grocery stores, Tintelnot explains.
Why is Trump in favor of them?
Trump stated that these tariffs would bolster American manufacturing and counter unfair trade practices.
“You see these empty, old, beautiful steel mills and factories,” Trump said on the campaign trail. “We’re going to bring the companies back. We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs.”
“A bilateral trade deficit is a poor metric, as such deficits are natural,” Tintelnot says. “It’s like taxing your local gym because you pay them more than they pay you.”
Trump also claimed the tariffs would curb illegal immigration and drug trafficking into the United States.
“China makes the fentanyl, gives it to Mexico, puts it through Canada, puts it through different places, mostly Mexico, but also a lot through Canada,” he stated. “And so all three haven’t treated us very well.”
What are the potential impacts of tariffs such as the ones Trump is imposing?
A 2024 study by the Peterson Institute for International Economics indicated that Trump’s larger proposed tariff increases could disproportionately affect lower-income Americans. Walmart’s CEO recently indicated that the retailer might raise prices if the tariffs are implemented.
“We import vehicles from Canada and Mexico, and many of our grocery items come from Mexico,” Tintelnot said. “Therefore, price increases are expected.”
Trump’s first-term tariffs on steel, clothing, and other goods did lead to increased domestic production. However, economists worry that widespread tariffs could significantly impact inflation for American consumers.
Tintelnot notes that these tariffs differ from Trump’s first-term tariffs on China—some of which Biden retained. These tariffs apply to entire products, meaning a car made in Mexico or Canada with U.S. parts would still be subject to tariffs upon entering the U.S.
“Most goods from China originate in China or elsewhere in Asia. However, with Canada and Mexico, we’ll be indirectly tariffing Americans,” Tintelnot says.
Canada and Mexico have announced retaliatory tariffs following Trump’s actions, potentially escalating into a trade war and further fueling inflation, Tintelnot warns.
“We don’t want to be here,” Canadian Prime Minister Justin Trudeau said, announcing retaliatory 25% tariffs on $155 billion of U.S. goods.
Mexican President Claudia Sheinbaum criticized the U.S. tariffs and stated she would direct the Secretary of Economy to implement “tariff and non-tariff measures to defend Mexico’s interests.”
China’s foreign ministry released a statement on Saturday evening, stating that China “firmly deplores and opposes this move” and will “take necessary countermeasures.” The statement also claimed that China is actively combating narcotics and that fentanyl “is an issue for the U.S.”
“`