WASHINGTON (AP) — Right now, tariffs are making headlines. Here’s what you should understand about them:
Customs duties are a levy on goods coming from abroad.
Customs duties are usually levied as a percentage of the amount a purchaser pays an exporter from another country. In the United States,
tariffs are collected
by U.S. Customs and Border Protection officers at 328 points of entry nationwide.
U.S. tariff rates differ: Passenger vehicles typically face a rate of around 2.5%, whereas golf shoes have a duty of about 6%. The tariffs may be reduced for nations that have established free-trade deals with the United States. As an illustration, many products can circulate freely within regions like
United States, Mexico and Canada
tariff-free due to Trump’s US-Mexico-Canada trade deal.
Conventional economists typically doubt the merits of tariffs, viewing them as largely ineffective methods for governments to generate revenue and foster economic growth.
A lot of incorrect information circulates regarding who truly bears the cost of tariffs.
President Donald Trump,
a proponent of tariffs
asserts that these funds come from overseas nations. However, it is actually the importers—American businesses—that cover tariff expenses, with this money going directly to the U.S. Treasury. These firms generally transfer their increased expenditures to consumers through elevated pricing instead. This explains why experts argue that consumers ultimately bear the cost of tariffs.
Nevertheless, tariffs can harm foreign nations by increasing the cost of their products and complicating sales overseas. Companies from these countries may be forced to reduce their prices—thus reducing profit margins—in order to counteract the impact of tariffs and preserve their portion of the American market. According to a study conducted by Yang Zhou, an economist at Shanghai’s Fudon University, President Trump’s tariffs imposed on Chinese goods caused over three times as much economic damage within China compared to the effect felt in the United States.
What has Trump said about tariffs?
Trump has said tariffs will create more factory jobs, shrink the federal deficit, lower food prices and allow the government to subsidize childcare.
“Tariffs are the most incredible invention ever,” Trump stated at a gathering in Flint, Michigan, as part of his presidential campaign.
As President, Trump introduced tariffs with great fanfare—aiming at imported items like solar panels, steel, aluminum, and virtually anything coming from China.
He dubbed himself ‘Tariff Man.’
Trump has promised even more and higher tariffs in his second term.
In recent years, the United States has slowly moved away from its post-World War II position of advocating for worldwide free trade and reduced tariffs. This change reflects growing concerns over job losses in American manufacturing sectors, which many attribute to unrestricted trade practices and the rising economic power of China.
Tariffs primarily aim to shield local businesses from foreign competition.
By raising the price of imports, tariffs can protect home-grown manufacturers. They may also serve to punish foreign countries for committing unfair trade practices, like subsidizing their exporters or dumping products at unfairly low prices.
Before the federal income tax was established in 1913, tariffs were a major revenue driver for the government. From 1790 to 1860, tariffs accounted for 90% of federal revenue, according to Douglas Irwin, a Dartmouth College economist who has studied the history of trade policy.
Tariffs became less popular with the rise of global trade following World War II. The administration required significantly larger sources of income to fund its activities.
For the fiscal year ending September 30, the government amassed approximately $80 billion through tariffs and fees. This amount pales in comparison to the $2.5 trillion derived from individual income taxes and the $1.7 trillion from Social Security and Medicare taxes.
Nevertheless, Trump aims to implement a budget policy similar to what was prevalent during the 1800s.
Tariffs may also be employed to exert pressure on other nations regarding various matters.
could potentially be connected to trade
In 2019, for instance, Trump leveraged the prospect of tariffs to encourage Mexico to stem the flow of Central American migrants traversing through its land towards the United States.
Trump even sees tariffs as a way to prevent wars.
“I can handle this with just a phone call,” he stated during an August gathering in North Carolina.
If another nation attempts to initiate a conflict, he stated that he would make a warning:
We’re planning to impose 100% tariffs. Then, unexpectedly, the person in charge—whether it be the president, prime minister, or even a dictator—tells me, ‘Sir, we won’t declare war.’
Economists typically view tariffs as counterproductive.
Taxes imposed on imported goods increase expenses for businesses and individuals who depend on these products. Such actions may also lead to countermeasures from other countries.
The European Union
For instance, they retaliated against Trump’s tariffs on steel and aluminum by imposing taxes on U.S. products such as bourbon and Harley-Davidson motorcycles. Similarly, China countered with tariffs on American goods like soybeans and pork aimed at affecting his support base in rural areas.
A research conducted by scholars from the Massachusetts Institute of Technology, the University of Zurich, Harvard, and the World Bank determined that President Trump’s tariffs did not succeed in reviving job numbers in America’s midwestern region. According to their findings, these tariffs “did neither increase nor decrease overall U.S. employment” as intended for protection purposes.
Even with President Trump’s 2018 tariffs on imported steel, employment levels at U.S. steel facilities stayed nearly unchanged at approximately 140,000 workers. In contrast, Walmart alone has over 1.6 million employees within the country.
Moreover, the punitive duties levied by China and other countries on American products led to “adverse effects” on employment levels, particularly affecting farmers, according to the research. Although these measures were somewhat mitigated by the billions of dollars in federal assistance provided to farmers under President Trump’s administration, they still caused harm to businesses dependent on specific imported items due to his tariff policies.
Although Trump’s trade war may not have been effective from a policy standpoint, it proved successful politically. According to the research, regions heavily affected by the import tariffs saw an increase in backing for both Trump and Republican candidates running for Congress. These areas include the industrial Midwestern states and southern states with significant manufacturing industries such as North Carolina and Tennessee.
