Since his return to office, President Trump has set in motion a global trade war, wielding tariffs to try to achieve multiple goals at once: raising federal revenue, reducing or eliminating trade deficits with other nations and compelling manufacturers to make more of their goods in the United States.
But who actually pays those tariffs, and where does that money go?
Here’s how the process works.
What is a tariff, and who pays it?
A tariff is essentially a government surcharge on products imported from other countries.
Tariffs are paid by the companies that import the goods. The revenue from U.S. tariffs is paid by U.S. importers to the U.S. Treasury Department.
How does that work?
Here’s an example: If Walmart imports $100 in shoes from Vietnam — which face a 20 percent tariff under the terms of a preliminary trade deal — Walmart will owe $20 in tariffs to the U.S. government.
What happens next?
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Walmart could try to force the cost onto the Vietnamese shoe manufacturer by telling it that Walmart would pay less for the product.
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Walmart could cut into its own profit margin and absorb the cost of the tariff.
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Walmart could raise the price of the shoes at its stores.
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Some combination of the above.
Why is Trump using tariffs?
The president and his advisers say their goal is to make the tariffs so painful that they force companies to make their products in the United States. They argue that this will create more jobs in America and push up wages.
But Mr. Trump has also described tariffs as an all-purpose tool to extract concessions from other countries. The president also maintains that tariffs will rake in huge sums of revenue that the government can use to pay for domestic tax cuts.
Economists say tariffs cannot simultaneously achieve all the goals that Mr. Trump has set. In fact, many of his aims contradict one another. The same tariffs that are supposed to increase U.S. manufacturing are also making life painful for U.S. manufacturers, by disrupting their supply chains and raising the cost of their raw materials.
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