Since re-entering, President Trump has issued a surge in tariffs to rewire the global economy.
At 12:01am Eastern time on Wednesday, his most offensive move was still in place, leviing double-digit fees on dozens of countries. About 13 hours later, he said he would halt the implementation of tariffs for the next 90 days and cite new consultations with foreign countries regarding trade.
Trump said he would maintain new tariffs on China and raise them to another 125% after Beijing announced new retaliation.
The rising trade tensions are creating extreme volatility in financial markets. Economists are worried that the US could fall into a recession, especially if tariffs escalate.
Who pays the tariffs and where does the money go?
Customs duties are government surcharges for products imported from other countries.
Customs duties are paid by the company that imports the goods. Revenue from US tariffs is paid by US importers to the US Treasury.
For example, if Walmart imports $100 shoes from Vietnam, which faces a 46% tariff, Walmart borrows $46.00 tariff from 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?
Trump's perspective is that the trade deficit, the value of goods the United States imports from the country, is bad, minus what the United States sends as exports. He has long described the bilateral trade deficit as an example of the US “taken” or “subsidized” other countries.
American trade deficit and surplus With other countries
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 did your US trading partner respond?
The Trump administration has shown that 70 governments are ready to negotiate the deal, saying they have approached the US and tried to rewind taxation. Other countries are fighting back.
China currently imposes a total of 84% tariffs on all US products, increasing the 50% tax to coincide with Trump's latest TIT increase. It also banned more than a dozen American companies from doing business with China and Chinese companies, and stopped importing chickens from the five largest exporters in the United States.
China and the US are now taking a series of steps in just a week, and up until recently it was unimaginable. For nearly half a century of Mao Zedong's death, both countries appeared to be appearing on courses aimed at greater economic integration. Some experts have called the China-US partnership “chimera.”
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.
What's going on in the stock market?
The Benchmark S&P 500 Index was on the bear market crisis, defined as a drop of more than 20% from the last high before rallying news of a 90-day suspension on many of Trump's tariffs.
A line chart showing stock markets from six countries since Trump took office.
How can customs duties affect consumer prices?
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.
Trump's 25% tariff on imported vehicles has already sent tremors through the auto industry, urging businesses to stop shipping cars to the US, shutting down factories in Canada and Mexico, and firing workers in Michigan and other states.
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.
What is an import?
Borders are blurred in vehicle production, and often parts are supplied from around the world.
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.
Stellantis Idled Factory in Canada and Mexico fired 900 US workers who built Chrysler and Jeep vehicles and supplied engines and other parts to those factories.
Both Audi and Jaguar Land Rover, the luxury arms of the UK-based Volkswagen, have suspended exports to the US.
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.
Wirecutter has advice on how consumers can cope with the impact of offensive tariffs.
What happens next?
Federal Reserve Chairman Jerome H. Powell recently warned that President Trump's tariffs could rob inflation and slow growth. The latest monthly reading on consumer pricing will be released on Thursday, but the full impact of tariffs has not yet flowed into the economy.
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, Jack Ewing, Carl Russell, Colby Smith, Ian Austin, Vosa Isai, Annie Coryral, Keith Bradshire and Alan Rappyport.
