Since re-entering, President Trump has issued a surge in tariffs to rewire the global economy.
On Wednesday, Trump announced his most offensive policy ever, sparring several countries around the world. The 10% baseline rate in the world came into effect on Saturday, with dozens of counties going into effect next week in far higher counties.
Trump's move has caused financial markets to plummet, foreign leaders have issued denunciations, and authorities have warned of inflation and slowing economic growth.
What is customs duty?
Customs duties are government surcharges for products imported from other countries.
Customs duties are paid by the company that imports the goods. For example, if Walmart imports $10 shoes from Vietnam, which faces a 46% tariff, Walmart owes a $4.60 tariff on the US government.
What happens next?
Walmart can try to force Vietnamese shoe manufacturers to pay less for their products.
Walmart was able to reduce its own profit margins and absorb the costs of tariffs.
Walmart can raise the prices of shoes in its stores.
Or some combinations of the above.
The economist discovered that when Trump placed tariffs on China in his first term, most of the costs were handed over to consumers. However, economic studies have shown that his tariffs on foreign steel are slightly different. Only about half of these costs were handed over to the client.
Why is Trump imposing tariffs?
The president and his advisors say their goal is to make tariffs extremely painful and to force businesses to make products in the US. They argue that this will create more American jobs and boost wages.
But Trump also describes tariffs as a general tool, forcing Canada, Mexico and China to crack down on drug and immigration flows to the United States. The president also argues that tariffs will be waged on the vast amount of revenue that can be used to pay for the tax cuts.
Economists say tariffs cannot simultaneously achieve all of Trump's goals. In fact, many of his purposes contradict each other. The same tariffs that are thought to boost US manufacturing have hurt lifespans for US manufacturers by disrupting supply chains and increasing raw material costs.
“All of these tariffs are internally inconsistent,” said Chad Bowun, a senior fellow at the Institute of International Economics, a Washington think tank. “So what's the real priorities? Because you can't let all of them come at once.”
How were customs duties calculated?
The White House has given out an intricate look equation, but one explanation seems simple. It is the gap between what the US exports and imports to the country.
The White House formula for calculating that tariff
Trump's point of view is that the trade deficit, the value of goods the US imports from the country, minus what the US sends as exports — is bad, and tariffs apply until it is eliminated.
He has long described the bilateral trade deficit as an example of the US “taken” or “subsidized” other countries.
White House tariff calculations deem it “unbalanced” trade on more goods than they would buy into the US, and some countries face higher tariffs.
This formula does not explain the fact that some countries are excellent at creating specific products. This is a concept known as comparative advantage. And economists say it's pointless to force countries to accurately equalize their exports with the United States.
How did the financial markets react?
Wednesday's announcement caused a global defeat in the stock market as they were worried about the trade war. These concerns were largely confirmed after China retaliated against Trump's radical tariffs with its own sudden collection of US goods.
The S&P 500, the benchmark US index, fell 6% on Friday, bringing its weekly loss to 9.1%. It has been the steepest weekly decline since the early days of the coronavirus pandemic in March 2020.
A line chart showing stock markets from six countries since Trump took office.
The losses were widespread, struggling with technology companies and companies relying on Chinese manufacturing in their supply chains. Apple's stock fell more than 13% in a week. Shares of Caterpillar, which manufactures construction equipment, fell nearly 11%.
How did your US trading partner respond?
China has said it will impose a 34% tariff on all US products that match the taxes Trump announced on Chinese products this week. It also banned 11 American companies from doing business in China, and customs officials said they would halt imports of chicken from the five largest agricultural exporters in America.
The European Union said it is preparing measures against new Trump fees after announcing previous retaliation measures that focused on a variety of products, including whiskey, motorcycles and women's clothing. EU officials are considering trade barriers for services using new trade weapons targeted at Big Tech and Wall Street, using new trade weapons developed only in 2021.
Canada has vowed to protect workers, businesses and the economy from new tariffs and threats from Trump. Prime Minister Mark Carney recently said it was clear that the US is “no longer a reliable partner.”
In March, after US steel and aluminum tariffs came into effect, the Canadian government said it would impose new retaliatory tariffs on US imports worth $20 billion, in addition to the previously announced 25% tariffs.
Mexico made extensive efforts to dodge tariffs, sending more than dozens of accused cartel leaders to the United States, facing criminal charges and sending troops to the Fentanyl Institute and the US border.
The UK tried to nurture close ties with the US, but still got swept away by Trump's tariffs.
South Korea has convened an emergency task force and vowed to “put all government resources into overcoming the trade crisis.”
Brazil said it is also evaluating retaliation measures.
Australia said Prime Minister Anthony Albanese would not respond with retaliatory tariffs as he vowed not to participate in a competition to the bottom, which leads to higher prices and slower growth.
Which countries are exempted?
Russia was particularly absent from countries large and small that were hit by new US tariffs.
Treasury Secretary Scott Bescent said Moscow was spared after the Ukrainian invasion effectively halted US trade, and sanctions were imposed on the country.
However, transaction data draws more complex pictures. Last year, Russia still exported goods worth around $3 billion to the US. This is mainly fertilizer and platinum.
North Korea, Cuba and Belarus were also subject to severe sanctions and were also excluded from the new taxation.
What happens next?
Federal Reserve Chairman Jerome H. Powell warned on Friday that President Trump's tariffs could rob inflation and slow growth.
Many analysts have said that it will quickly downgrade economic growth forecasts and that tariffs will boost consumer prices and business costs, slowing demand and economic activity.
Piper Sandler's Chief Global Economist Nancy Lazar estimated that the US economy could potentially sign a 1% contract in the second quarter. She had previously expected a flat quarter. “It was an instant hit in the economy,” she said.
A Fitch Rating economist said in a memo Thursday that tariffs have significantly increased the risk of a US recession. He said tariffs will result in a rise in consumer prices, which narrows down actual wages and weighs consumer spending.
How can customs duties affect consumer prices?
A chart showing which countries have the largest share of US imports. Mexico, China and Canada are the three largest.
Our Imported Share
2008-24
Our Imported Share
2000-24
Trump's tariffs are targeted at countries that supply the United States with a wide variety of goods. For American families, a very likely outcome is high prices at grocery stores, car dealers, electronic retailers and clothing stores.
Avocados, tomatoes and strawberries imported from Mexico are some of the first places shoppers may notice price increases.
Due to existing inventory, or if a company expects tariffs to be temporary, it can take some time for the price of durable goods, such as cars, to rise.
Yale Budget Lab estimated that Trump's new car rate, which took effect Thursday, would increase vehicle prices at an average of 13.5%. In total, the group estimated that American households would pay an average of between $500 and $600 as a result of tariffs.
Trump repeated the sentiment, claiming that price increases were minimal compared to other economic benefits. Over the weekend, NBC News correspondent Kristen Welker asked the president if he was concerned that tariffs could make cars more expensive. “I didn't really care,” Trump replied.
“When prices of foreign cars go up, they're going to buy American cars,” he said of the consumer.
What does it mean to be made by Americans?
What is an import?
Borders are blurred in vehicle production, and often parts are supplied from around the world.
Almost half of all vehicles sold in the US are imported, and almost 60% of the parts used in vehicles assembled in the US are imported.
Since the creation of the North American free trade zone in 1994, American and foreign-owned automakers have built supply chains that transcend the borders of the US, Canada and Mexico.
For example, the 2024 Chevrolet Bleather, a popular sports utility vehicle created by General Motors, is assembled in a Mexican factory using an engine and transmission produced in the US.
What is the history of US tariffs?
1789: The United States relied heavily on tariffs to fund the federal government and protect domestic manufacturers, as proposed by First Secretary of the Treasury, Alexander Hamilton.
1828: The federal government passed an average tariff of 38% to protect the country's manufacturing sector from foreign competitors. These have been labelled “hate tariffs” by the southern states, and their economy relied on exporting raw materials and importing manufactured goods, leading to constitutional conflicts.
1930: The Smoot Holy Customs Act of 1930 was enacted in an attempt to protect US businesses after the stock market crash of 1929. Instead, as explained in “Ferris Buhler's Holiday,” tariffs “didn't work and the United States sank deep into the Great Repression.”
1934: Franklin D. Roosevelt signed the Mutual Trade Agreement Act, giving the President the authority to negotiate a bilateral trade agreement. This set the stage for over 90 years of liberal free trade policy.
Reports were contributed by Mark Rander, Eche Nelson, Alexandra Stevenson, Andrew Duren, June Kim, Carl Russell, Colby Smith, Ian Austin, Vosa Isai, Annie Correle, Keith Bradshire and Alan Rappeport.
