Donald Trump has introduced new tariffs on goods imported into the U.S. from Canada, Mexico, and China. The former president signed an executive order imposing a 25% tariff on all imports from Canada and Mexico, aiming to pressure these countries into taking stronger action against illegal immigration and drug trafficking.
Additionally, a 10% tariff will be levied on goods from China, on top of existing duties, until the country addresses fentanyl smuggling. Trump has previously pledged to impose a 60% tariff on Chinese goods and has even considered a 200% tax on certain vehicle imports.
Tariffs have been a key component of Trump’s economic strategy, which he believes can bolster the U.S. economy, protect domestic jobs, and generate tax revenue. During his election campaign, he reassured voters that these taxes would not be a burden on them. “It’s not going to be a cost to you, it’s a cost to another country,” he asserted.
However, this claim was widely dismissed by economists as misleading.
How Tariffs Function
A tariff is essentially a domestic tax applied to goods entering the country, based on their value. For instance, if an imported car worth $50,000 is subject to a 25% tariff, an additional $12,500 charge will be applied. The cost of the tariff is paid by the domestic company that imports the product rather than the foreign exporter. In practice, this means U.S. firms must pay the tariff to the U.S. government.
In 2023, the U.S. imported approximately $3.1 trillion worth of goods, representing about 11% of the nation’s GDP. The tariffs imposed on these imports generated $80 billion in revenue, accounting for roughly 2% of total U.S. tax revenue.
However, the ultimate economic impact of tariffs is more complex. If an importing company passes the tariff cost onto consumers through price increases, American buyers bear the financial burden. Conversely, if the firm absorbs the cost, it results in reduced profits. A third possibility is that foreign exporters lower their prices to offset the tariff and maintain U.S. customers, leading to reduced profits on their end.
While all these scenarios are theoretically possible, economic analyses of the tariffs implemented by Trump between 2017 and 2020 indicate that American consumers bore most of the burden.
A University of Chicago survey conducted in September 2024 found that an overwhelming majority of economists agreed with the statement that “imposing tariffs results in a substantial portion of the tariffs being borne by consumers of the country that enacts the tariffs, through price increases,” with only 2% disagreeing.
Price Increases and Consumer Impact
One concrete example of tariff-driven price hikes is Trump’s 2018 decision to impose a 50% tariff on washing machine imports. Researchers found that this policy led to a 12% price increase, costing U.S. consumers approximately $1.5 billion annually.
If Trump were to introduce even higher tariffs in a future administration, the economic impact is expected to be similar. The Peterson Institute for International Economics, a nonpartisan think tank, estimates that Trump’s proposed tariffs would lower American incomes. The wealthiest fifth of Americans would see a reduction of around 2%, while the poorest fifth would experience a decline of approximately 4%.
A typical middle-income U.S. household would lose an estimated $1,700 per year due to these tariffs. The Center for American Progress, a left-leaning think tank, projects even higher losses, estimating that middle-income families could see annual financial hits ranging from $2,500 to $3,900.
Several economists have warned that another large round of tariffs could contribute to increased domestic inflation.
Job Market Effects
Trump has repeatedly justified his tariffs as a means to protect and create American jobs. “Under my plan, American workers will no longer be worried about losing your jobs to foreign nations, instead, foreign nations will be worried about losing their jobs to America,” he stated during his campaign.
His tariffs were introduced in response to longstanding concerns over the decline of U.S. manufacturing jobs due to globalization, particularly following the North American Free Trade Agreement (NAFTA) with Mexico in 1994 and China’s entry into the World Trade Organization in 2001.
In January 1994, when NAFTA came into effect, the U.S. had nearly 17 million manufacturing jobs. By 2016, that number had fallen to about 12 million.
However, many economists argue that this decline is not solely due to trade agreements but also reflects the rise of automation and other technological advancements.
Studies analyzing Trump’s first-term tariffs found no substantial overall employment gains in U.S. industrial sectors that were protected by these policies.
For example, in 2018, Trump imposed a 25% tariff on imported steel to support domestic steel producers. Yet, by 2020, employment in the U.S. steel industry had actually declined, standing at 80,000 jobs—down from 84,000 in 2018.
It is possible that without the tariffs, steel industry employment would have dropped even further. However, detailed economic studies concluded that the tariffs did not lead to meaningful job growth.
Moreover, some industries suffered indirect job losses due to higher material costs. For example, manufacturers reliant on steel, such as agricultural machinery producer Deere & Co, reportedly experienced lower employment levels as a result of higher steel prices.
Trade Deficit Challenges
Trump has frequently criticized the U.S. trade deficit, arguing that it harms the economy. “Trade deficits hurt the economy very badly,” he has claimed.
In 2016, before Trump assumed office, the U.S. trade deficit for goods and services was $480 billion, or about 2.5% of GDP. By 2020, despite his tariff policies, the deficit had ballooned to $653 billion, approximately 3% of GDP.
Economists attribute this increase partly to the impact of tariffs on currency values. By reducing demand for foreign currencies in international trade, tariffs strengthened the U.S. dollar, making American exports less competitive globally.
Additionally, tariffs in a globalized economy can often be circumvented.
For instance, Trump imposed a 30% tariff on Chinese solar panel imports in 2018. However, the U.S. Commerce Department later found that many Chinese manufacturers had relocated assembly operations to countries such as Malaysia, Thailand, Cambodia, and Vietnam. By exporting finished solar panels from these nations, companies effectively evaded U.S. tariffs.
Limited Support for Tariffs Among Economists
While most economists oppose Trump’s tariffs, some believe they could benefit U.S. industry. Jeff Ferry of the Coalition for a Prosperous America, a domestic industry advocacy group, supports the tariffs as a means of strengthening American manufacturing.
Similarly, Oren Cass, director of the conservative think tank American Compass, argues that tariffs can incentivize companies to keep production in the U.S., which he believes has national security and supply chain benefits.
Despite Trump’s aggressive trade policies, the Biden administration has retained many tariffs introduced after 2018. Additionally, Biden has imposed new tariffs on certain Chinese imports, including electric vehicles, citing concerns over national security, domestic industry protection, and unfair subsidies from Beijing.
Looking Ahead
As Trump prepares for a potential return to office, his tariff policies remain a focal point of economic debate. While he insists that tariffs will boost U.S. industry and protect jobs, economic studies suggest they have primarily increased costs for American consumers without delivering significant employment benefits.
With China, Canada, and Mexico vowing to retaliate, the long-term consequences of these policies remain uncertain.