{"id":867976,"date":"2025-08-25T23:14:22","date_gmt":"2025-08-26T04:14:22","guid":{"rendered":"https:\/\/newsycanuse.com\/index.php\/2025\/08\/25\/5-big-questions-about-trumps-tariffs-and-how-they-might-work\/"},"modified":"2025-08-25T23:14:22","modified_gmt":"2025-08-26T04:14:22","slug":"5-big-questions-about-trumps-tariffs-and-how-they-might-work","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2025\/08\/25\/5-big-questions-about-trumps-tariffs-and-how-they-might-work\/","title":{"rendered":"5 big questions about Trump\u2019s tariffs and how they might work"},"content":{"rendered":"
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Editor\u2019s note, August 7, 10:30 am ET<\/strong>: On August 7, Trump\u2019s tariffs went into effect for about 90 countries. The story below was originally published on April 2.<\/em><\/p>\n

President Donald Trump has said that \u201ctariff\u201d is the \u201cmost beautiful word in the dictionary<\/a>.\u201d And throughout his first months in office, he has given Americans plenty of cause for googling that word\u2019s definition.<\/p>\n

The president announced Wednesday \u2014 a day he dubbed \u201cLiberation Day<\/a>\u201d \u2014 that he will impose tariffs of at least 10 percent on all foreign-made goods. For products made in China, the tariff rate will be 34 percent; for those made in Vietnam, it will be 46 percent; for the European Union, it will be 20 percent. Trump framed these tariffs as \u201creciprocal,\u201d meaning that that they match the level of trade restrictions that each foreign nation imposes on US products. But this is not true \u2014 Trump\u2019s tariffs greatly exceed those of America\u2019s targeted trade partners.<\/p>\n

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Before Wednesday, Trump had already announced tariffs on steel and aluminum<\/a> made outside the US, all products made in Canada or Mexico<\/a>, all Chinese goods<\/a>, and all foreign-made cars<\/a>, among other things.<\/p>\n<\/div>\n

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The president\u2019s prolific and haphazard tariff declarations have tanked stock markets<\/a>, soured consumer sentiment<\/a>, and thrilled some longtime critics<\/a> of globalization.<\/p>\n<\/div>\n

Meanwhile, they\u2019ve left some Americans concerned and confused; tariffs arguably haven\u2019t been this relevant to the US economy in nearly a century. So many are understandably unsure about what tariffs are, how they affect consumers, why governments would implement them, and whether the president\u2019s policy will work on its own terms.<\/p>\n

Here\u2019s the short answer:<\/strong> Tariffs are a tax on imported goods. They generally make affected consumer products more expensive. In theory, well-designed tariffs will also encourage targeted industries to produce more in the United States. And manufacturing certain goods domestically \u2014 instead of importing them from abroad \u2014may have national security or economic benefits. Trump\u2019s own rationales for his tariffs are numerous and shifting: He sees them as a tool for raising revenue, enhancing national security, and revitalizing the US economy by increasing domestic manufacturing jobs. But the president\u2019s tariffs are so broad, high, and ever-changing that they could actually backfire.<\/p>\n

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What are tariffs? How will they affect consumers? <\/strong><\/h2>\n<\/p>\n<\/div>\n

To understand what tariffs are \u2014 and how they work \u2014 it\u2019s helpful to consider a concrete example. On April 3, Trump will impose a 25 percent tariff on all cars made outside the United States. This means businesses that import foreign-made automobiles \u2014 such as car dealerships \u2014 will need to pay a 25 percent tax on every foreign vehicle that they purchase.<\/p>\n

When a business\u2019s costs rise, it typically tries to compensate by raising prices. And the president actually needs<\/em> his auto tariffs to raise the prices of foreign cars: The official point of this tariff is to encourage Americans to buy more domestically produced cars, so that more auto manufacturers locate production in the US. If the tariff doesn\u2019t make foreign-made cars more expensive for US consumers, it won\u2019t give them any incentive to \u201cbuy American<\/a>.\u201d<\/p>\n

In practice, Trump\u2019s auto tariffs are likely to increase the prices of all<\/em> cars, including American-made ones. This is for two reasons: First, US car manufacturers will need to pay tariffs on foreign-made auto parts. And second, US auto companies will face weaker competition. Previously, American carmakers couldn\u2019t raise prices without fearing that doing so would lead potential customers to purchase a German, Japanese, or South Korean car instead. Trump\u2019s tariffs make that much less of a concern.<\/p>\n

For these reasons, economists have estimated that Trump\u2019s tariffs will raise US car prices by between $4,000 and $15,000 per vehicle<\/a>.<\/p>\n

These same basic dynamics apply to tariffs on other goods. Put a tariff on foreign-made washing machines, and US retailers that import such appliances will raise prices. American washing machine makers, meanwhile, will be able to charge more due to weaker competition.<\/p>\n

And this actually happened: In 2018, Trump put a tariff on washing machines, which stayed in effect until 2023. During the four years that those tariffs were in place, the cost of laundry equipment in the US rose by 34 percent<\/a>, much higher than the overall inflation rate over that period.<\/p>\n

Trump\u2019s current tariffs are poised to have an even bigger impact on Americans\u2019 finances. According to a recent estimate from the Yale Budget Lab, Trump\u2019s tariffs on Canada, Mexico, and China alone could reduce the average US household\u2019s disposable income by as much as $2,000<\/a>.<\/p>\n

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If tariffs hurt consumers, why would governments impose them? What are the benefits of tariffs?<\/strong><\/h2>\n<\/p>\n<\/div>\n

There is little question that tariffs are bad for consumers. But in theory, they could still serve a nation\u2019s interests in at least three ways:<\/p>\n

By generating revenue.<\/strong> Since tariffs are a tax, they provide the government with revenue that it can use to pay down debts or finance spending. The US government actually used tariffs as its primary revenue source from the republic\u2019s founding until the Civil War<\/a>. But since the federal income tax was introduced in 1913, tariffs have become an increasingly marginal source of funds for the government.<\/p>\n

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Trump says he wants to change this. In fact, he has called for replacing income taxes with tariffs.<\/a> And his administration claims that its auto tariffs will bring in $100 billion of revenue this year<\/a>.<\/p>\n<\/div>\n

By nurturing highly valuable domestic industries. <\/strong>Many nations have successfully used tariffs to facilitate economic development.<\/p>\n

For example, beginning in the 1960s, South Korea sought to build up its domestic car industry. But getting such an industry off the ground is difficult. In their first years of operation, South Korea carmakers had little hope of producing automobiles that were competitive with foreign ones in quality or price. By placing high tariffs<\/a> on foreign-made cars, the South Korean government ensured that its domestic automakers would have a market for their less-than-stellar vehicles. Today, South Korean brands like Kia and Hyundai are globally competitive.<\/p>\n

America\u2019s car industry is much more mature today than South Korea\u2019s was in the 1960s. But American auto manufacturers cannot make electric vehicles as efficiently as China can<\/a>. Economic analysts disagree about whether it is important for America to have a globally competitive EV sector. But if we do want to nurture our electric vehicle industry, it makes some sense to put high tariffs on Chinese EVs \u2014 as both Joe Biden<\/a> and Trump<\/a> have done.<\/p>\n

By improving national security.<\/strong> Some goods and commodities have military value. Relying on foreign nations for steel, ammunition, advanced semiconductors, or various other technologies could undermine a country\u2019s national security \u2014 after all, foreign nations could theoretically choke off America\u2019s access to militarily valuable technologies in the midst of a conflict. And many of Trump\u2019s tariffs are officially intended<\/a> to enhance America\u2019s capacity to produce materials necessary for war.<\/p>\n

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How have recent administrations used tariffs?<\/strong><\/h2>\n<\/p>\n<\/div>\n

The United States had used tariffs to nurture its infant industries during the 19th and early 20th centuries. But in the wake of World War II, America pursued the open exchange of goods across borders.<\/p>\n

With much of Europe and Asia in ruins, US manufacturers did not need tariffs to dominate global industry. Meanwhile, America\u2019s foreign policy establishment feared that communism would take root in Western Europe and Japan if they did not successfully rebuild their industrial economies. Therefore, to foster healthy capitalist growth abroad \u2014 while lowering prices for Americans \u2014 the US pursued tariff reduction.<\/p>\n

The United States did occasionally enact new tariffs between the Second World War and Trump\u2019s first election. For example, in 1987, Ronald Reagan put a 100 percent tariff<\/a> on Japanese computers, televisions, and power tools, after Japan blocked US-made semiconductors from its market. But the general direction of US trade policy between Harry Truman\u2019s presidency and Trump\u2019s first term was toward freer trade.<\/p>\n

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What will be the effect of Trump\u2019s tariffs specifically? <\/strong><\/h2>\n<\/p>\n<\/div>\n

Unfortunately, it seems unlikely that Trump\u2019s tariffs will generate reliable revenue, strengthen American manufacturing, or improve US national security. (And their odds of advancing Trump\u2019s more peculiar trade policy goals<\/a>, such as coercing Canada into becoming the 51st state, are even slimmer.)<\/p>\n

There is a simple problem with tariffs as a revenue source: The more a tariff encourages consumers to buy domestically produced goods, the less revenue it generates. For example, if a tariff on foreign cars leads everyone to buy American vehicles, then the car tariff will cease generating revenue. Thus, for Trump\u2019s tariffs to provide a steady source of revenue, they would need to be so low that importers continue purchasing lots of foreign-made goods (and thus paying taxes on them).<\/p>\n

But Trump\u2019s tariffs in many sectors are very high, precisely because he wants Americans to purchase fewer foreign-made goods. So the president\u2019s tariffs can\u2019t plausibly provide enough consistent revenue<\/a> to offset his proposed tax cuts<\/a> (let alone, to fully replace the federal income tax).<\/p>\n

Meanwhile, his tariffs could actually hurt<\/em> US manufacturing for at least three reasons:<\/p>\n

First, Trump\u2019s tariffs apply to a vast number of industrial inputs, such as metals, energy, and electronics.<\/strong> This will raise costs for US manufacturers, forcing them to raise prices, which will render their products less appealing to foreign consumers. Further, tariffs on inputs will also give companies an incentive to locate factories in other countries, where they will not have to pay, for example, a 25 percent tax on parts and materials made in Canada or Mexico.<\/p>\n

Second, Trump\u2019s tariffs will reduce the real wages of American workers.<\/strong> If the average US household\u2019s disposable income drops by $2,000, that family will likely spend less money on goods. This could ultimately reduce demand for US-made products.<\/p>\n

Indeed, the market research firm Cox Automotive believes<\/a> that this is precisely what will happen with Trump\u2019s car tariffs. In its analysis, US car plants will likely have to cut production by 30 percent, as consumers will respond to rising prices by postponing car purchases.<\/p>\n

Third, foreign countries are <\/strong>retaliating against<\/strong><\/a> Trump\u2019s trade policies by placing tariffs on American-made goods.<\/strong> And that will limit the global sales of American manufacturers. This will be especially true of America\u2019s most innovative and advanced industries, such as pharmaceuticals<\/a>, chemicals<\/a>, and medical equipment<\/a>, which are more likely to sell their wares globally.<\/p>\n

We\u2019ve already seen Trump\u2019s tariffs backfire for these reasons. According to a 2019 Federal Reserve analysis<\/a>, the tariffs Trump imposed during his first term reduced <\/em>manufacturing employment in affected industries.<\/p>\n

Finally, the tariffs\u2019 hypothetical national security benefits are dubious. America\u2019s security likely depends more on strong international alliances than the amount of steel we produce domestically<\/a>. And Trump\u2019s tariffs have antagonized America\u2019s closest allies<\/a> while undermining our nation\u2019s credibility as a dealmaker: In 2018, Trump himself reached a trade agreement<\/a> with the governments of Canada and Mexico. Yet he nevertheless applied 25 percent tariffs on both countries this year, in direct violation of his own trade deal.<\/p>\n

If the United States is unwilling to abide by the terms of the agreements it orchestrates, other countries have less incentive to cooperate with us.<\/p>\n

In sum, Trump\u2019s tariffs are likely to raise prices, weaken US manufacturers, and undermine America\u2019s alliances and global influence.<\/p>\n

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How long will Trump\u2019s tariffs be in effect?<\/strong><\/h2>\n<\/p>\n<\/div>\n

It\u2019s unclear how lasting Trump\u2019s tariffs will prove to be. He has framed some of the duties \u2014 such as his 25 percent tariffs on Canada and Mexico \u2014 as a potentially temporary bargaining chip<\/a> in negotiations over trade and border security. But he has suggested that others will be permanent.<\/p>\n

As the costs of Trump\u2019s trade policies to US consumers and manufacturers mount, it is possible that the administration will decide its agenda is politically unsustainable. Already, Trump\u2019s tariffs are deeply unpopular, with 61 percent of voters disapproving of them in a recent CNN poll<\/a>.<\/p>\n

Update, April 2, 4:50 pm ET<\/strong>: This post was updated to include information from Trump\u2019s speech about tariffs.<\/em><\/p>\n<\/div>\n

Eric Levitz
Read More<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Editor\u2019s note, August 7, 10:30 am ET: On August 7, Trump\u2019s tariffs went into effect for about 90 countries. The story below was originally published on April 2. President Donald Trump has said that \u201ctariff\u201d is the \u201cmost beautiful word in the dictionary.\u201d And throughout his first months in office, he has given Americans plenty<\/p>\n","protected":false},"author":1,"featured_media":867977,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[357,163],"tags":[7336,5123],"class_list":{"0":"post-867976","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-questions","8":"category-trumps","9":"tag-questions","10":"tag-trumps"},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/867976","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/comments?post=867976"}],"version-history":[{"count":0,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/867976\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media\/867977"}],"wp:attachment":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media?parent=867976"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/categories?post=867976"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/tags?post=867976"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}