President Donald Trump has implemented sweeping tariffs on America’s top three trading partners: Mexico, China, and Canada. These countries collectively accounted for 40% of all US imports last year, with goods valued at $1.4 trillion.
The new tariff structure is as follows:
Mexico and Canada: 25% tariff on all goods, except Canadian energy products
China: 20% tariff on all goods
Commerce Secretary Howard Lutnick has indicated that there may be room for negotiation regarding the Mexican and Canadian tariffs1. However, these countries have already vowed to impose retaliatory tariffs on US goods.
Trump has linked these tariffs to efforts to stop the flow of fentanyl into the US5. However, economists warn that these measures could significantly raise prices of goods at a time when the economy is already facing challenges.
Key points about tariffs:
Definition: A tariff is a tax on goods imported from another country6.
Structure: Tariffs are typically calculated as a percentage of the import’s value and can vary based on the product and country of origin6.
Payment: Contrary to Trump’s claims, domestic businesses importing products are responsible for paying tariffs upfront, not the exporting countries.
Collection: US Customs and Border Protection collects tariff revenue at 328 designated points of entry, including airports, railways, roads, and ports.
Economic impact: While tariffs may benefit some workers in import-competing industries, they can hurt workers in sectors relying on imported inputs and those in exporting industries facing retaliation from trade partners.
Potential consequences: Tariffs can lead to higher prices for US consumers and businesses, lower profit margins, wage cuts, job losses, and deferred expansions.
Trade deficit: Despite Trump’s intentions, previous tariffs did not significantly reduce the US trade deficit with China, and the overall trade deficit increased with other countries.
It’s important to note that while tariffs may seem like a simple solution, their economic impacts are complex and can have far-reaching consequences for both domestic and international markets