On Wednesday, new tariffs manufactured outside the United States, which add to similar measures on steel, aluminum and certain goods from Canada, Mexico and other countries.
But its strategy of disrupting decades of established norms – including free trade agreements with some of the closest allies in the United States – has already caused reprisals of the main commercial partners, has agitated the markets and has had repercussions on diplomatic relations. Economic tension has begun to be noticed, and consumers anxiety is increasing.
What exactly are tariffs and how do they work? Who actually pays them? And what does Trump want to ultimately?
What are tariffs and how do they work?
A tariff is an additional government charge on products imported from other countries.
Understanding tariffs means understanding how manufacturing, trade and supply chains work, and how costs accumulate in that process.
Who pays the tariffs?
Companies that import merchandise to a country are those that pay tariffs directly. The governments of China, Mexico, Canada and other countries would not pay any money to the US government with the new Trump tariffs.
The cost of tariffs can be distributed according to how companies and countries react.
Commercial policy experts agree that most likely the cost of new US tariffs falls on US consumers, as already happened in Trump’s first mandate. Retailers usually raise prices, and manufacturers who use imported materials face higher costs. Imposing import tariffs can also increase the value of the US dollar, which makes US exports more expensive.
Tariffs can also affect foreign companies and governments.
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Sometimes, foreign manufacturers can decrease their prices, which accept to obtain lower benefits. Similarly, governments can institute a tax return to help compensate for the tariff load, or they can devalue their coins to compensate for the impact of the tariff, as China has done on other occasions.
What tries to get Trump?
Trump has described tariffs as a multipurpose tool. These are the arguments of his government:
- The threats of imposing tariffs on Canada, Mexico and China are a pressure measure to force the main business partners of the United States to take energetic measures against the flow of drugs and migrants to that country.
- Pending encumbrances on steel, aluminum and copper are a way of protecting national industries that are important for defense, while those applied to cars will underpin a crucial base of manufacturing.
- A new system of “reciprocal” tariffs is a way to prevent the United States from being “scammed” by the rest of the world.
Trump also argues that tariffs will raise huge sums of income that the Government can use to pay tax cuts and expenses, and even to balance the federal budget. But economists point out that, in reality, tariffs can reduce tax revenues if the economy contracts.
Commerce experts point out that tariffs cannot simultaneously achieve all the objectives Trump has expressed. In fact, many of its objectives contradict and undermine each other.
For example, if Trump tariffs incite companies to manufacture more of their products in the United States, US consumers will buy less imported goods. Consequently, tariffs will generate less income for the government.
“All these tariffs are internally incoherent to each other,” said Chad Bown, principal researcher at the Peterson Institute of International Economics, a group of Washington experts. “So what is the true priority? Because all those things cannot happen at the same time.”
How have Canada and other countries reacted?
Hours after American tariffs on steel and aluminum at the beginning of the month, the Canadian government stated that it would impose new retaliation tariffs on US imports worth 20,000 million dollars.
The last movements of Canada focused on imports from:
- steel and aluminum
- tools
- computers
- Sports articles
- cast iron
These tariffs are additional to the 25 percent tariffs that the country announced earlier this month after an initial round of taxes by Trump.
The European Union announced similar retaliation tariffs. But European officials, who already face a mediocre economy, delayed their date of entry into force, partly to increase the possibilities of negotiating an agreement with Trump. “Jobs are at stakes, the increase in prices; nobody needs that,” said Ursula von der Leyen, president of the European Commission.
In response to a previous round, the Chinese finances imposed 15 percent tariffs on chicken, wheat, corn and cotton from the United States and 10 percent to imports from other agricultural products.
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Mexico made a great effort to defend himself from tariffs, with the sending of more than two dozens of accused cartels leaders to be tried in the United States and soldiers to fentanyl laboratories and the US border.
The United Kingdom chose not to retaliate, while Prime Minister Keir Starmer tries to sign a long -term commercial agreement with the United States. And the Prime Minister of Australia, Anthony Albanese, declared that his country would not impose reciprocal tariffs because they would harm national consumers.
What could be the impact on consumer prices?
Trump tariffs are aimed at countries that are important suppliers of a wide variety of products for the United States.
For American families, the probable result is an increase in supermarket prices, car dealers, electronics stores and gasoline suppliers.
Fresh products, many of which are imported from Mexico, are one of the first categories in which buyers could notice a price increase. In the case of avocados, tomatoes and Mexican strawberries, among other products, it could occur in a couple of weeks.
Price increases would also have an impact on alcoholic beverages, especially beer and tequila. In 2023, almost three quarters of American agricultural imports from Mexico consisted of distilled vegetables, fruits, drinks and liquors, according to the United States Department of Agriculture.
The prices of lasting goods, such as cars, could take longer to rise in price due to the existing inventory, or if companies expect tariffs to be temporary.
Trump has argued that the price increase will be minimal compared to other economic benefits. In a speech against Congress on March 4, the president said: “There will be a small disorder, but it seems good to us. It will not be much.”
Tariffs on cars reveal a critical issue: What does it mean in the United States?
In the last three decades, since the North American free trade zone was created in 1994, car manufacturers have built supply chains that cross the borders of the United States, Canada and Mexico.
Manufacturers get economies of scale by building motor plants and transmissions large enough to supply several vehicle factories in North America. A similar thought also works for other pieces: seats, instrument panels, electronics, axes.
For example, the Chevrolet Blazer 2024, a popular sports utility vehicle manufactured by General Motors, is assembled in a Mexican plant using motors and transmissions that occur in the United States.
Nissan manufactures his Altima sedan in Tennessee and Mississippi; The turbocharged car of the car has a 2 -liter engine that comes from Japan and a transmission made in a Canada factory.
The threat of tariffs concerns car manufacturers. “Let’s be honest,” said Jim Farley, executive director of Ford Motor, at an investor conference in February. “In the long term, a 25 percent tariff on the borders of Mexico and Canada would open a hole in the American industry that we have never seen.”