President Trump is using tariffs to reconnect the global economic order with numerous, yet another move that believes they will promote our factories and generate revenue.
He is expected to impose new tariffs on cars on Wednesday, adding similar actions on steel, aluminum and certain commodities in Canada, Mexico and elsewhere.
But he raised his strategy of decades of established norms – including free trade agreements with some of the U.S.’s recent allies – has sparked retaliation for major trading partners, rattling markets and subverting diplomatic relations. Economic pressure has begun to show, and consumer anxiety is rising.
What exactly are tariffs and how do they work? Who is really paying for them? What does Mr. Trump want in the end?
What are tariffs and how do they work?
Tariffs are government surcharges for products imported from other countries.
Understanding tariffs means understanding how manufacturing, trade and supply chains work, and how costs are built along the way.
Who pays the tariffs?
Tariffs are paid directly by companies that import goods into a country. Governments in China, Mexico, Canada and other countries will not pay anything to the U.S. government under the new Trump tariffs.
The cost of tariffs can be passed on according to the way companies and countries respond.
Trade policy experts agree that American consumers are most likely to bear the cost of new U.S. tariffs, just as they did during his first term. Retailers often raise prices, and manufacturers using imported materials face higher costs. Imposing tariffs on imports can also increase the value of the dollar, making U.S. exports more expensive.
Tariffs can also affect foreign companies and governments.
Foreign manufacturers may sometimes lower prices and accept lower profits. The government can also establish tax rebates to help offset the tariff burden, or can devalue its currency as China used to offset the impact of tariffs.
What is Trump trying to accomplish?
Mr. Trump described the tariffs as a general tool. His government argues:
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The threat to tariffs on Canada, Mexico and China is forcing the U.S.’s largest trading partner to suppress drug and immigration flows into the U.S. Kudger.
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The expropriation on steel, aluminum and copper is a way to protect family industries that are important to national defense, while those on automobiles will support the key foundations of manufacturing.
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A new “countdown” tariff system is a way to prevent the United States from being “ripped apart” by the rest of the world.
He also insists that tariffs will pay a lot of revenue that the government can use to pay tax cuts and spending, and even balance the federal budget. But economists point out that if the economy decreases, tariffs can actually reduce tax revenue.
Trade experts point out that tariffs cannot achieve all the goals expressed by Mr. Trump at the same time. In fact, many of his goals are in conflict with each other.
For example, if Mr. Trump makes more products in the United States, American consumers will buy less imports. As a result, tariffs will bring less revenue to the government.
“All of these tariffs are not consistent with each other internally,” said Chad Bown, senior fellow at the Peterson Institute for International Economics, a Washington think tank. “So, what are the real priorities? Because you can’t all of these things happen immediately.”
How did Canada and other countries react?
The Canadian government said a few hours after U.S. steel and aluminum tariffs that came into effect earlier this month it would impose new retaliatory tariffs on $20 billion worth of U.S. imports
Canada’s latest move is centered on imports:
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Steel and aluminum
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Tools Computer
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Sports Products
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cast iron.
The country announced a 25% tariff announced earlier this month after Mr. Trump’s first tax.
The EU has announced similar retaliatory tariffs. But European officials have faced economic deficits, delaying their effective dates, in part because of increased opportunities for a deal with Mr. Trump. “Works are threatened, prices are rising; no one needs them,” said European Commission President Ursula von der Leyen.
In response to the previous round, the Chinese Treasury Department imposed a 15% tariff on the import of chicken, wheat, corn and cotton in the United States and a 10% tariff on the import of other agricultural products.
“The trade war and tariff war begin with hurting others and ultimately harming itself; the United States should learn courses and change its courses,” said Mao Ning, a spokesman for the Chinese Foreign Ministry.
Such retaliatory tariffs are likely to hurt American farmers, manufacturers and other U.S. exporters.
Mr. Trump’s move has inspired Canadians to financial anxiety and anger at how neighbors, allies and best clients treat them. Most are still confused by Mr. Trump’s motivations and goals for the tariffs, and his comments on annexation of Canada as the 51st state.
Mexico has made a major effort to defend against tariffs, sending more than twenty accused cartel leaders in the United States and sending troops to the Fentanyl Laboratory and the U.S. border.
Britain chose not to retaliate as Prime Minister Keir Starmer hopes to sign a long-term trade deal with the United States. Australian Prime Minister Anthony Albanese said his country would not impose reciprocity tariffs because they would harm domestic consumers.
What impact will it have on consumer prices?
Mr. Trump’s tariff target is a major supplier of various U.S. goods.
For American households, the possible outcome could be higher prices for grocery aisles, car dealerships, electronic stores and pumps.
Fresh produce, the majority of products imported from Mexico, is one of the first categories that shoppers may notice rising prices. For Mexican avocados, tomatoes and strawberries, etc., this may happen within a few weeks.
Price increases are also expected to hit the alcohol aisle, especially beer and tequila. According to the USDA, in 2023, nearly three-quarters of USDA’s agricultural imports include vegetables, fruits, beverages and distilled liquor.
Because existing stocks, or companies expect tariffs to be temporary, durable goods (such as cars) may require longer price increases.
Mr. Trump believes that price increases will be minimal compared to other economic interests. “There will be some distractions, but we are happy with that. It won’t be too much,” the president said in a speech to Congress this month.
Automobile tariffs reveal a key question: What does it mean to be made in the United States?
Over the past three decades, since the creation of the North American Free Trade Zone in 1994, automakers have built supply chains across the borders of the United States, Canada and Mexico.
Manufacturers achieve economies of scale through building engines and transmission plants, which are large enough to offer many vehicle factories in North America. Similar thinking applies to other parts – seats, dashboards, electronics, axles.
For example, a popular sport utility vehicle 2024 Chevrolet blazer made by General Motors is assembled in a Mexican factory using engines and engines produced in the United States.
Nissan makes Altima sedans in Tennessee and Mississippi; the turbocharged version of the car has a two-liter engine, a gearbox from Japan, and a factory in Canada.
The threat of tariffs has bothered automakers. “Let’s be really honest,” Ford Motorcycle CEO Jim Farley said at an investor meeting in February. “Tariffs across the entire Mexican and Canadian border will blow up a hole in a U.S. industry we’ve never seen before.”
What is USMCA?
Mr. Trump signed the U.S.-Mexico Agreement during his first term in January 2020. The agreement updates the 25-year-old North American Free Trade Agreement and provides new laws on intellectual property protection, the Internet, investment, state-owned enterprises and currencies.
The 2,082-page treaty also includes incentives for manufacturing cars in North America, requiring automakers to produce 62.5% of cars in Canada, the United States and Mexico in order to obtain zero tariffs.
The new agreement states that 40 to 45% of parts of any duty-free vehicle come from so-called high-paying factories, where workers earn at least $16 per hour, about three times the average salary of the Mexican factory when the bill was signed.
The USMCA also includes a wide range of changes, at least on paper, designed to help the competitive environment between workers in the United States, Canada and Mexico.
The president said Thursday that he would allow products traded under USMCA rules to avoid the 25% tariff he imposed on him a few days ago.
Reported by Andrew Duehren,,,,, Colby Smith,,,,, Ian Austin,,,,, vjosa isai,,,,, Anne Correll,,,,, Keith Bradsher and Alan Rappeport.
