Donald Trump has implemented new tariffs on goods entering the U.S. from Canada, Mexico, and China. The President has signed an executive order imposing a 25% tariff on all goods from Canada and Mexico to pressure both countries to address illegal immigration and drug trafficking. Additionally, goods originating from China will face a 10% tariff along with any other applicable tariffs until China addresses fentanyl smuggling. Trump has even proposed a 60% tariff on Chinese imports, and potentially a 200% tax on specific car imports.
Tariffs play a central role in Trump's economic strategy, aiming to stimulate the U.S. economy, safeguard jobs, and increase tax revenue. Economists widely perceive this approach as misleading.
Practically, a tariff is a domestic tax imposed on imported goods based on their value. For instance, a $50,000 car subject to a 25% tariff would incur a $12,500 fee, paid by the U.S. company importing the goods, not the foreign supplier.
The economic burden of tariffs can vary. If the U.S. importer increases retail prices to transfer the tariff cost to consumers, they bear the burden. Alternatively, if the importer absorbs the tariff cost, their profits decrease. Foreign exporters might also lower prices to offset tariffs and maintain their U.S. market share, assuming the burden themselves.
Trump's rationale for tariffs extends to protecting American jobs, illustrated by the 25% tariff on steel imports in 2018. Despite emphasizing reducing America's trade deficit, which is the variance between imports and exports, tariffs have limitations in a globalized economy.
Although some economists support Trump's tariff strategy to bolster domestic industries, they represent a minority. The Biden/Harris administration has criticized proposed tariff extensions but maintained many implemented after 2018.