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If you thought you could breeze through the week without any need for a trade-policy explainer, think again.
The Trump administration is busily threatening and imposing huge tariffs, or taxes on goods imported into the U.S., and that means now’s as good a time as any to read up on how they actually work.
Are “tariffs” just another way to say “import taxes?”
“What’s distinctive about tariffs is who pays them,” Robert Howse, a professor of international economic law at NYU, told Quartz. “The entity or person who is legally responsible for bringing that product into the country has to pay the tariff.”
In other words, when President Trump “hits” [insert countries] with tariffs, the affected countries don’t actually pay the new fees. Instead, border agents collect the federal government’s chosen cut (usually a percentage) from the (typically U.S.-based) company that’s paying to import a foreign product.
There are many reasons why a country might impose tariffs on a trade partner. For one, it’s a way to raise money, like any tax. Countries also levy tariffs to create advantages for domestic manufacturers, by way of making it pricier to buy stuff made overseas. Basically ever since the U.S. declared its own existence, the country has imposed tariffs with these particular goals in mind. The U.S. once relied way more on tariffs to raise revenue, but that changed with the introduction of income taxes.
If tariffs are normal, then what’s the hubbub?
Over the last century, Congress gradually empowered the executive branch to implement tariffs. And President Trump, in particular, favors huge tariffs — including when it comes to the U.S.’s closest trade partners.
On February 3, 2025, Trump announced and then delayed a 25% tariff on all Mexican imports. He simultaneously announced 25% tariffs on most Canadian imports, as well as 10% tariffs on Chinese imports. Trump has also floated tariffs on EU and UK goods.
The president campaigned on tariffs, has dubbed himself “tariffs man,” and has called tariffs the “greatest thing ever invented.” He’s recently sought to draw a connection between tariffs, immigration, and the fentanyl crisis.
“In this case, the tariffs have been linked to these supposed national-security or emergency-type issues,” explained Howse. “But one has to look at it also through [Trump’s] overall economic philosophy, if you can call it that, which is that tariffs can be effective in making America more self sufficient, creating industrial products, and so on, by making the costs of buying imported products more expensive.”
Why does Trump like tariffs?
“Trump has a theory of industrialization that he seems to have divined from his read of President William McKinley and updated in light of his understanding of Harley Davidson’s (HOG-2.69%) plight in India,” Marc Busch, an international business diplomacy professor at Georgetown, told Quartz. Essentially, it boils down to: If you build it (“really high tariff walls”) they will come (“do business inside the United States”), Busch explained. With these tariffs, Trump’s “hope is that foreign and domestic investors will set up their businesses inside the United States to avoid the tariff wall and sell to what he considers to be the biggest, best economy on Earth.”
This sort of thing has happened in the past in many countries, and it persists in developing nations. But, according to Busch, this isn’t a viable strategy for the U.S., and that’s in part because of how complex the global economy is today.
Busch explained, “The idea that, like McKinley, you can induce investment on the part of Company A by virtue of erecting a high tariff wall is really hard to rationalize where you’re talking about Company A coming with 150 tier-one suppliers, 1,000 tier-two suppliers, etc., etc. And that’s why it’s just a very out-of-date and ill-applied analogy to a time gone by.”
Will tariffs help the U.S. somehow?
A 2024 study from MIT, World Bank, Harvard, and University of Zurich economists found that Trump’s first-term trade war circa 2018-2019 “has not provided economic help to the U.S. heartland” by somehow creating jobs. Meanwhile, “retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory U.S. agricultural subsidies,” the authors said.
Trump may see tariffs as a “revenue grab” to lower income taxes, explained Busch. “The story about revenue, while tempting, is off base,” he said. “And it’s unfortunate that we’re having this conversation in 2025, because we’re currently at about 2% central budget by virtue of tariff revenue, and that’s probably where it should stay.”
Who pays for tariffs in the long run?
According to Yale’s The Budget Lab, the tariffs will likely drive up the prices Americans pay for countless goods, such as cars, lumber, fuel, and food.
Even if Trump can meaningfully increase tariff revenue, Busch explained, “you’re talking about a tremendously regressive tax that would overwhelmingly hammer poor families because you’re taxing things that are purchased.”
According to Howse, some price tags will rise quicker than others. “If they’re buying some commodity that they have little choice but to buy,” like fuel to heat their homes, “the seller is going to say, ‘Well, they’re going to need this regardless, so I’m simply going to pass on the extra cost to the consumer.’” For products that aren’t deemed to be quite as necessary, as well as industrial inputs, then the businesses using those inputs “are going to be careful about passing on the whole price, because at the end of the day, they may start losing money, because consumers will go elsewhere,” Howse added.
Okay, but what about leverage? While affected countries don’t pay tariffs directly, they still pay a price, so to speak, when tariffs make it harder to sell stuff and ultimately impact their respective economies. Yet, Busch said, “the leverage story doesn’t obviate the ‘consumers in the United States will pay the price of the tariff’ logic; that is a given.”
