What do Trump’s tariffs mean for your wallet and the economy?
You can find an updated timeline of what tariffs are currently in effect here.
The second Trump administration enacted tariffs on the United States’ biggest trading partners on March 4, a move that it’s already walking back.
President Donald Trump imposed 25% tariffs on goods from Canada and Mexico and a 10% tariff on China earlier this week, on top of an additional 10% tax he’s already placed on Chinese imports.
But on Thursday, Trump said that he will postpone the 25% tariff on most imports from Canada and Mexico for one month. U.S. automakers are also exempt from tariffs on imports from Canada and Mexico for a month, said White House Press Secretary Karoline Leavitt during a press briefing on Wednesday. These vehicles have to follow the rules set in place by the U.S.-Mexico-Canada Agreement.
Trump’s plan to place 25% tariffs on Canada and Mexico and 10% tariffs on China were projected to hit $1.4 trillion worth of imports, according to the Tax Foundation. Trump’s tariffs during his first term only affected $380 billion worth of goods and primarily targeted China.
“The most beautiful word in the dictionary is ‘tariff,’ and it’s my favorite word,” Trump said during an October conversation with Bloomberg News.
Trump imposed these tariffs to stop illegal immigration and prevent fentanyl and other drugs from entering the country, according to the White House, even though drug overdose deaths from fentanyl are on the decline.
There is “limited economic rationale” for these policies, said Andrew Greenland, an assistant professor of international economics at North Carolina State University. Countries normally avoid placing tariffs on their allies, Greenland said.
U.S. businesses and consumers – not other countries – are the ones who end up paying for tariffs. That’s because tariffs are a tax that importers pay to the U.S. government. To compensate for that tax, importers can either eat the costs or pass them along to you in the form of higher prices.
Various organizations have attempted to assess how Trump’s different proposed tariff policies will affect prices. The amounts may vary, but all have found that consumers will end up paying more for their groceries and everyday goods.
What tariff policies has the Trump administration 2.0 proposed?
In February, the Trump administration announced it would impose a 25% additional tariff on all imported goods from Canada and Mexico, a 10% tariff on energy resources from Canada, and an additional 10% tariff on Chinese imports.
That additional 10% tariff on China went into effect, prompting China to retaliate and impose a 15% tax on imports like U.S. coal and liquified natural gas and a 10% tax on U.S. crude oil, agricultural machinery, large-engine vehicles and pickup trucks. On Tuesday, Trump slapped an additional 10% tariffs on Chinese goods, bringing the total amount to 20%.
Trump agreed to a 30-day pause on those additional Mexico and Canada tariffs. While that suspension lifted on Tuesday, Trump decided to postpone tariffs on most goods from these countries for yet another month.
However, Canada announced retaliatory tariffs that it says will remain in place. It announced on Tuesday that it is set to impose 25% tariffs on $155 billion worth of imported goods. Tariffs are already in effect on $30 billion worth of American goods, like certain types of meat, wine, orange juice, pajamas and footwear.
In early February, when Trump’s tariff plans were announced, Reuters reported that Mexico was interested in imposing tariffs of 5% to 20% on pork, cheese, fresh produce, and manufactured steel and aluminum.
The Trump administration also plans to reinstate a 25% tariff on all steel imports and raise the tariff on all aluminum imports to 25%, with no exemptions. These taxes will take effect next week.
Trump has threatened to impose a 25% tariff on the European Union and a reciprocal tariff plan that ensures the U.S. tariff rate on imports match the rates countries have imposed on U.S. exports.
Those reciprocal tariffs would “completely destroy the international trade system,” said Gregory Shaffer, a professor of international law at Georgetown University. They would result in 180 different tariff rates on 180 different countries for tens of thousands of products, Shaffer noted.
Last year, Trump floated the idea of implementing sweeping 10% to 20% tariffs on all imported goods and an additional tariff of 60% or higher on Chinese goods.
What’s a trade war and are we in one?
The term “trade war” doesn’t have an official definition. There is no rulebook that states a trade war will be triggered if a country sets a tariff at a certain level. But it generally describes a tit-for-tat conflict between countries that are restricting each other’s trade.
In a trade war, countries escalate the conflict by continually raising tariffs on one another, which risks leaving all countries worse off, Shaffer said.
“The plan for an additional 10% tariffs are part of a larger trade war between the U.S. and China that has run hot and cold, but persisted since President Trump first raised massive tariffs on Chinese products during his first administration,” Shaffer said.
By the end of 2019, during the first Trump administration, the U.S. had imposed tariffs on more than $360 billion worth of Chinese goods, while China had imposed tariffs on about $110 billion worth of U.S. products, including soybeans, a major agricultural export for the U.S. (The tariff rate on those soybeans is currently low thanks to a waiver.)
U.S. agricultural exports dropped by up to $30 billion between the middle of 2018 and the end of 2019.
In 2020, the two countries signed a trade deal. China had to buy an additional $200 billion in U.S. exports over two years (although it never ended up doing so). The U.S. cut tariffs on $120 billion goods in half to 7.5%, while China reduced tariffs on $75 billion of U.S. goods by half.
When it comes to our neighbors, Canada and Mexico, experts say retaliatory tariffs from these two countries would trigger a trade war. The 25% tariffs the U.S plans to impose are “massive,” Shaffer said.
If the European Union responds with its own 25% tariffs on U.S. goods, that would also constitute a trade war, Shaffer said. “Given that these series of actions would involve trade wars between the U.S. and all major economies with which the U.S. has significant trade relations, including traditional allies, the U.S. would be launching a global trade war as the aggressor,” Shaffer said.
Will my groceries, clothing and electricity bill get more expensive?
Yes. The Budget Lab at Yale, a nonpartisan policy research center, looked at the consequences of 20% tariffs on China and the proposed 25% tariffs on Canada and Mexico. In total, households could lose an average of about $1,600 to $2,000 in real disposable income over the next year.
The price of fresh vegetables and fruits could end up rising 2.9% over the next year, according to the analysis.
The U.S. depends on countries with warmer climates to import fresh produce that it normally couldn’t get out of season, Greenland said.
“The only way for us to get those things is to be willing to pay the tariff,” he said.
Some key food imports from Mexico include avocados, strawberries, raspberries, tomatoes, and peppers, said David Ortega, a food economist and professor at Michigan State University.
But while importers may pass the cost onto consumers, that doesn’t necessarily mean retailers will hike up prices by 25%, he explained. Transportation expenses, along with wholesaler and retailer margins, make up a significant portion of an item’s price, and those costs aren’t subject to tariffs, Ortega said.
Tariffs on China, Canada and Mexico could also lead to an average price increase of 10.6% for computers and electronics, 7.5% for apparel and 6.1% for automobiles, the Budget Lab found.
The U.S. has a complex auto supply chain that relies on labor and parts from Mexico and Canada. Car components can travel between the U.S. and these other countries constantly. Wiring will go from Mexico to the U.S. to become a seat harness, then that seat harness will go back to Mexico to become a car seat. Then, finally, that seat will find its way back to the U.S. and get placed into the car, explained Marketplace’s Sabri Ben-Achour.
It’s unclear whether a 25% tariff would apply to a part every time it enters the U.S., but these tariffs on Mexico and Canada could raise the average car price by $3,000, according to Wolfe Research.
A 10% tax on Canadian energy will probably increase energy costs for some U.S. residents, namely those who live near the Canadian border. Neale Lunderville, head of Vermont Gas Systems, told Marketplace that the provider passes its costs onto customers.
“A 10% tariff on Canadian energy will mean a direct rate impact for our customers,” Lunderville said.
The U.S. also imports lumber from Canada and gypsum from Mexico, which is used for drywall. Tariffs on these crucial home construction materials could lead to higher home prices.
Meanwhile, Trump’s steel and aluminum tariffs could also lead to price increases for everyday products. Air-conditioning units, buildings and cars require steel, Greenland said.
Some of the items the U.S. heavily imports from the EU include pharmaceutical products, automobiles, petroleum oils (other than crude), and alcohol, which could all be hit by tariffs and face price increases.
The National Retail Federation released an analysis looking at a couple of different tariff proposals, one being the effect of a 10% tariff on all imported goods and a 70% tariffs on all Chinese imports (this 70% figure was derived by adding Trump’s proposed 60% Chinese tariff on top of the 10% universal tariff).
Under this scenario, the consumer price of apparel would increase 12.5%, household appliances would go up 19.4%, and toys would increase by 36.3%.
Some companies have already confirmed they plan to raise prices if they get hit with tariffs. “We will pass those tariff costs back to the consumer,” said the CEO of AutoZone in an earnings call last year.
If Trump’s reciprocal tariff plan goes into effect, apparel could jump by 6.6% in price over the next year, computers and electronics could go up by 6.2%, and fruits and vegetables could go up by 2.3%, according to the Budget Lab at Yale.
What do tariffs mean for jobs and the broader U.S. economy?
“Tariffs are not job creators,” said William Rieber, an economics professor at Butler University.
If Trump imposes tariffs against Canada and Mexico, resulting in retaliation from those two countries, the economy could very well dip into a recession. During the Great Depression, the U.S. introduced tariffs to protect domestic industries, prompting other countries to retaliate, which exacerbated the depression, Rieber said.
Tariffs against Canada and Mexico could result in 177,000 job losses over the span of three to five years, according to a Brookings Institution analysis. If Canada and Mexico retaliate with their own tariffs, that figure could rise to 400,000 job losses.
Those tariffs could reduce U.S. economic output by about $45 billion over the span of three to five years, according to that Brookings analysis. If Canada and Mexico retaliate, the U.S. could face a loss of $75 billion.
Trump’s 25% tariff on imported aluminum alone could lead to 100,000 lost American jobs, said the CEO of Alcoa, an aluminum producer, at an industry conference.
While tariffs on steel and aluminum could protect some jobs in those industries, many of the firms who rely on these metals will face higher costs, Rieber said.
“They will raise their prices and they’ll sell fewer units of their goods,” Rieber said.
How will tariffs affect U.S. business owners?
Some companies are changing their business strategies in response to Trump’s policies. Grant Henegan, owner of the outdoor furniture chain Viridien Patio + Fireplace in the Carolinas, told Marketplace he’s been importing goods from Indonesia to avoid Chinese tariffs.
Some stocked up on products from their Chinese business partners ahead of the new year, like the tote bag and backpack company MinkeeBlue.
Businesses and trade groups have expressed concerns that future tariffs will eat into their profit margins. The National Restaurant Association said a 25% tariff on products from Mexico and Canada will cost restaurants $12 billion and reduce small business owners’ profits by 30%.
J.C. Hill, the owner of Alvarado Street Brewery in California, told Marketplace that he expects the price of aluminum cans, stainless steel fermenters, kegs and other equipment to rise. But he’s trying to avoid laying off employees. “It might just be one of those things where we just have to wear it on the chin. And hopefully ride it out,” he said.
Bigger companies have the resources to move some production back to the U.S. The tech giant Apple, facing tariffs on its products, announced that it will invest $500 billion on U.S. operations over the next four years, although a majority of its production spending will still go into China.
But Marketplace spoke to a trade consultant earlier last month who told us that smaller companies say they are committed to having a global supply chain.
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