Tariffs are taxes on imported goods, used by governments to regulate trade and protect domestic industries.
What is a Tariff?
A tariff makes foreign products more expensive, encouraging consumers to buy local. Tariffs also generate government revenue and can be used as leverage in trade negotiations.
Who Pays for Tariffs?
Importing companies, not foreign manufacturers, pay tariffs to U.S. Customs. These costs are often passed to consumers through higher prices.
Types of Tariffs
Ad Valorem Tariffs – A percentage of the product's value, like a 25% duty on Canadian lumber.
Specific Tariffs – A fixed fee per unit, such as $1 per imported avocado.
Tariff-Rate Quotas – A lower tariff up to a set amount, with higher fees beyond that limit.
Recent Developments
On February 1, 2025, President Trump signed an executive order imposing 25% tariffs on imports from Canada and Mexico, and an additional 10% levy on goods from China. These measures aim to address issues like illegal immigration and drug trafficking. However, the tariffs on Mexico and Canada have been paused for a month following negotiations.
Impact on Consumers
Analysts warn that new tariffs could push U.S. inflation from 2.9% to 4%, increasing costs for everyday items like cars, electronics, and food. For example, automakers have expressed concerns that these tariffs could lead to a sharp increase in vehicle prices.
Why Use Tariffs?
Governments impose tariffs to:
Protect Local Businesses – Making imports costlier encourages domestic sales.
Raise Revenue – Tariffs contribute to government funds.
Negotiate Trade Deals – Used as bargaining tools.
Retaliate – Counter unfair trade practices.
Tariffs shape global trade, impacting businesses and consumers. While they can protect industries and generate revenue, they also risk raising costs and inflation.