President Trump is using tariffs to rewire the global economic order in a flurry of on-again, off-again maneuvers, arguing they will boost U.S. factories and generate revenue. But his strategy has already triggered retaliation from major trading partners, rattled markets and upended diplomatic ties.
On Wednesday, the European Union announced up to $28 billion in retaliatory tariffs on U.S. goods, shortly after President Trump’s sweeping levies on steel and aluminum imports took effect. The Canadian government said that it would impose new retaliatory tariffs on $20 billion worth of U.S. imports in response to the latest Trump measures.
A day earlier, Mr. Trump escalated his fight with Canada, threatening to double tariffs on steel and aluminum imports before both sides backed down, at least temporarily.
The economic strain is beginning to show. Stocks are tumbling, and consumer anxiety is rising.
What exactly are tariffs, and how do they work? Who really pays for them?
What are tariffs, and how do they work?
A tariff is a government surcharge on products imported from other countries.
Understanding tariffs means understanding how manufacturing, trade and supply chains function — and how costs build along the way.
Who pays for tariffs?
Tariffs are directly paid by the companies that import goods into a country. The governments of China, Mexico, Canada and other countries would not pay any money to the U.S. government under the new Trump tariffs.
The cost of the tariffs can be passed around depending on how companies and countries react.
Trade policy experts agree that American consumers will most likely bear the cost of the new U.S. tariffs, as they did in his first term. Retailers often increase prices, and manufacturers that use imported materials face higher costs. Imposing tariffs on imports can also drive up the value of the U.S. dollar, making American exports more expensive.
The tariffs can also affect foreign companies and governments.
Foreign manufacturers may sometimes cut their prices, accepting lower profits. Governments can also institute a tax rebate to help offset the tariff burden, or can devalue their currencies to offset the impact of the tariff, as China has done before.
Where do Trump’s current tariffs stand?
What is Trump trying to accomplish?
Mr. Trump has described tariffs as an all-purpose tool. His administration has argued that:
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The threats of tariffs on Canada, Mexico and China are a cudgel to force America’s largest trading partners to crack down on the flow of drugs and migrants into the United States.
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Pending levies on steel, aluminum and copper are a way to protect domestic industries that are important to defense, while those on cars will prop up a critical base of manufacturing.
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A new system of “reciprocal” tariffs is a way to stop America from being “ripped off” by the rest of the world.
He also maintains that tariffs will rake in huge sums of revenue that the government can use to pay for tax cuts and spending and even to balance the federal budget. But economists point out that tariffs can actually reduce tax revenue if the economy shrinks.
The Trump administration has given a mix of rationales for the tariffs on Canada and Mexico. Some Trump officials, such as Vice President JD Vance and Howard Lutnick, the commerce secretary, said they were intended to spur crackdowns on illicit drugs, specifically fentanyl.
But Mr. Trump has also said he wants factories to move from Canada and Mexico into the United States. And in a social media post on Tuesday, he said U.S. banks were prevented from doing business in Canada while Canadian banks “flood the American market.”
Trade experts point out that tariffs cannot simultaneously achieve all of the goals that Mr. Trump has expressed. In fact, many of his aims contradict and undermine one another.
For instance, if Mr. Trump’s tariffs prod companies to make more of their products in the United States, American consumers will buy fewer imported goods. As a result, tariffs would generate less revenue for the government.
“All of these tariffs are internally inconsistent with each other,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics, a Washington think tank. “So what is the real priority? Because you can’t have all those things happen at once.”
How have other countries reacted?
The European Union said its retaliatory tariffs, which would take effect April 1, were proportionate to the tariffs applied by the United States. But European officials, already facing a lackluster economy, emphasized that they were ready to strike a deal with the Trump administration. “Jobs are at stake, prices up — nobody needs that,” said Ursula von der Leyen, president of the European Commission.
In response to a previous round, China’s Finance Ministry placed 15 percent tariffs on imports of chicken, wheat, corn and cotton from the United States and 10 percent tariffs on imports of other agricultural products. Canada also imposed 25 percent tariffs on $20.5 billion worth of U.S. goods.
Retaliatory tariffs like these could very likely hurt U.S. farmers, manufacturers and other American exporters.
Mao Ning, a spokeswoman the Chinese Ministry of Foreign Affairs, contended at the ministry’s daily briefing on Monday that nobody should be imposing extra tariffs.
“Trade wars and tariff wars all start with harming others and end with harming oneself — the United States should learn lessons and change its course,” she said.
Mr. Trump’s move has ignited a sense of economic anxiety and anger among Canadians about how they are being treated by their neighbor, ally and best customer. Most are still puzzling over Mr. Trump’s motivations and objectives for the tariffs, as well as his comments about annexing Canada as the 51st state.
Mexico made a major effort to fend off tariffs, sending more than two dozen accused cartel leaders to be tried in the United States and dispatching troops to fentanyl laboratories and the U.S. border.
Britain has chosen not to retaliate, as Prime Minister Keir Starmer looks to sign a long-term trade deal with the United States. And Prime Minister Anthony Albanese of Australia said his country would not impose reciprocal tariffs because they would hurt domestic consumers.
What could the impact be on consumer prices?
Mr. Trump’s tariffs target countries that are major suppliers of a wide variety of goods to the United States.
For American families, the likely result is higher prices in grocery aisles, at car dealerships, at electronics stores and at the pump.
Fresh produce, much of which is imported from Mexico, is one of the first categories where shoppers might notice an uptick in prices. It could happen within a couple of weeks for Mexican avocados, tomatoes and strawberries, among other products.
Price increases are poised to hit liquor aisles, too, especially beer and tequila. In 2023, nearly three-quarters of U.S. agricultural imports from Mexico consisted of vegetables, fruit, beverages and distilled spirits, according to the U.S. Department of Agriculture.
It could take longer for prices to rise for durable goods, like cars, thanks to existing inventory, or if companies expect the tariffs to be temporary.
Mr. Trump has argued the price increases will be minimal compared with other economic benefits. In an address to Congress on Tuesday, the president said: “There will be a little disturbance, but we are OK with that. It won’t be much.”
What is the U.S.M.C.A.?
Mr. Trump signed the United States-Mexico-Canada Agreement into law in January 2020, during his first term. The agreement updated the 25-year-old North American Free Trade Agreement, with new laws on intellectual property protection, the internet, investment, state-owned enterprises and currency.
The 2,082-page pact also includes incentives to make cars in North America, requiring automakers to produce 62.5 percent of a vehicle’s content in Canada, the United States and Mexico to qualify for zero tariffs.
The new agreement mandates that 40 to 45 percent of the parts for any tariff-free vehicle come from a so-called high-wage factory, where workers make a minimum of $16 an hour — about triple the average wage in a Mexican factory at the time the bill was signed.
The U.S.M.C.A. also included expansive changes that, at least on paper, were meant to help level the playing field among workers in the United States, Canada and Mexico.
On Thursday, the president said he would allow products that are traded under the rules of the U.S.M.C.A. to avoid the stiff 25 percent tariffs he had imposed just days earlier.
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