All About Tariffs

Most Americans were only vaguely familiar with tariffs—taxes on imported goods—before President Trump began imposing hefty ones on nearly all of the nation’s trading partners earlier this year. The goal, he says, is to fix what he’s deemed an unfair trading system in which America imports far more from other nations than they import from the U.S. The tariffs are meant to force foreign governments to sign new trade deals that increase American exports. They’re also meant to pressure U.S. companies to make more of their products at home rather than using factories in low-wage countries such as China and Vietnam.

“Jobs and factories will come roaring back into our country,” Trump said when he unveiled the initial round of tariffs on April 2, calling it “Liberation Day.”

But the future of many of Trump’s tariffs is in question. The Constitution gives Congress the power to levy taxes and regulate foreign trade, and the Supreme Court is now considering a case that will decide whether the president can use emergency powers to impose most of his tariffs without Congressional approval.

Here’s what you need to know to understand the issue.

Most Americans were only somewhat familiar with tariffs —taxes on imported goods —before President Trump began placing large ones on nearly all of the nation’s trading partners earlier this year. The goal, he says, is to fix what he’s deemed an unfair trading system. America imports more goods from other nations than they import from the U.S. The tariffs are meant to force foreign governments to sign new trade deals that increase American exports. They’re also meant to pressure U.S. companies to make more of their products at home rather than using factories in low-wage countries such as China and Vietnam.

“Jobs and factories will come roaring back into our country,” Trump said when he unveiled the initial round of tariffs on April 2, calling it “Liberation Day.”

But the future of many of Trump’s tariffs is in question. The Constitution gives Congress the power to levy taxes and regulate foreign trade. The Supreme Court is now considering a case that will decide whether the president can use emergency powers to impose most of his tariffs without Congressional approval.

Here’s what you need to know to understand the issue.

Tariffs are taxes on goods imported from other nations. Tariffs are collected by governments and typically paid by importers. For example, if an American shoe company faces a 40 percent tariff on a $100 pair of shoes imported to the United States from a factory in Myanmar, the company will owe $40 in tariffs to the U.S. government. Businesses may pass some or all of the cost of the tariff to consumers through higher prices.

Countries around the world have used tariffs to protect certain industries, to raise money for their governments, or to apply pressure on foreign governments. The world’s wealthiest nations have tended to maintain low tariffs, while poorer countries with less developed economies have been more likely to rely on tariffs for revenue or to protect emerging industries, experts say. Countries with some of the highest average tariffs in the world include Tunisia (19.5 percent), Algeria (18.9 percent), and Cameroon (18.1 percent).

Tariffs are taxes on goods imported from other nations. Tariffs are collected by governments. They are usually paid by importers. For example, if an American shoe company faces a 40 percent tariff on a $100 pair of shoes imported to the United States from a factory in Myanmar, the company will owe $40 in tariffs to the U.S. government. Businesses may pass some or all of the additional cost to consumers through higher prices.

Countries around the world have used tariffs to protect certain industries. Tariffs have also been used to raise money for their governments or to apply pressure on foreign governments. The world’s richest nations have tended to maintain low tariffs, while poorer countries with less developed economies have been more likely to rely on tariffs for revenue or to protect emerging industries, experts say. Countries with some of the highest average tariffs in the world include Tunisia (19.5 percent), Algeria (18.9 percent), and Cameroon (18.1 percent).

Before President Trump returned to office, the U.S. tariff rate hovered at an average of less than 3 percent, lower than in many other countries, but still roughly in line with those of Canada, the United Kingdom, Japan, and the European Union. For decades, U.S. officials were convinced of the benefits of freer trade. They believed lower tariffs would allow the U.S. to import cheap products for American consumers and raw materials for its factories, fueling the domestic economy.

Before President Trump returned to office, the U.S. tariff rate hovered at an average of less than 3 percent, lower than in many other countries. It was still roughly in line with those of Canada, the United Kingdom, Japan, and the European Union. For many years, U.S. officials were convinced of the benefits of freer trade. They believed lower tariffs would allow the U.S. to import cheap products for American consumers. Lower tariffs would also mean cheaper raw materials for U.S. factories, fueling the domestic economy.

President Trump sees tariffs as a way to revive American manufacturing and raise money for the government. He wants to reduce America’s trade deficits—the value of goods the U.S. imports from other countries minus what it sends as exports. He has long viewed that gap as evidence that America is being “ripped off” by other countries.

Trump and his advisers say they want to make the tariffs so painful that they force companies to make their products in the U.S. They argue this will create more American jobs and push up wages. Trump has also described tariffs as an all-purpose tool to extract concessions from other countries.

Peter Navarro, a White House trade adviser, told Fox Business Network in July that the president is leading a “fundamental restructuring” of the global trade environment that will help the U.S. achieve more favorable terms with all of its trading partners.

“The biggest market in the world has said: ‘You’re not going to cheat us anymore. We’re going to have fair deals,’” Navarro said.

President Trump sees tariffs as a way to revive American manufacturing and raise money for the government. He wants to reduce America’s trade deficits. (The value of goods the U.S. imports from other countries minus what it sends as exports.) He has long viewed that gap as evidence that America is being “ripped off” by other countries.

Trump and his advisers say they want to make the tariffs so painful that they force companies to make their products in the U.S. They argue this will create more American jobs and push up wages. Trump has also described tariffs as an all-purpose tool to get other countries to compromise.

Peter Navarro, a White House trade adviser, told Fox Business Network in July that the president is leading a “fundamental restructuring” of the global trade environment that will help the U.S. achieve more favorable terms with all of its trading partners.

“The biggest market in the world has said: ‘You’re not going to cheat us anymore. We’re going to have fair deals,’” Navarro said.

The tariffs have hit all of America’s trading partners. In early April, Trump announced 10 percent tariffs on all U.S. imports, and tariffs ranging from 11 to 54 percent on more than 60 nations. He says these “reciprocal” tariffs are based on the taxes other countries levy against the U.S. However, he quickly paused these tariffs for several months after Wall Street investors responded negatively, and he urged countries to strike trade deals with the U.S. instead. He has since announced agreements with the European Union, the United Kingdom, Vietnam, Indonesia, the Philippines, Japan, and South Korea.

Trump has threatened some of his highest tariffs against China, a source of many low-cost goods that Americans have long relied upon (see “Your Home Without China,” below). At one point, Trump imposed a 145 percent tax on Chinese products before lowering it to 30 percent in an effort to encourage American companies not to outsource production there.* He’s imposed a 50 percent tariff on all imports from Brazil, partially in response to what he says is its unfair treatment of Brazil’s former president Jair Bolsonaro, who was convicted for attempting a coup; and also on India, as punishment for buying Russian oil. He has also singled out Mexico and Canada, saying his proposed 25 percent tariffs on most imports from Mexico and 35 percent on most Canadian goods will pressure both nations to crack down on illegal drugs and migrants entering the U.S. (Both nations say they’ve already taken a tougher stance on these.)

In what President Trump says is an effort to boost the competitiveness of American industries, he’s also targeted specific products with his levies. Those include a 50 percent tariff on foreign steel and aluminum, as well as a 25 percent tariff on foreign cars and auto parts, and a 30 percent tariff on upholstered furniture.

The tariffs have hit all of America’s trading partners. In early April, Trump announced 10 percent tariffs on all U.S. imports. He also imposed tariffs ranging from 11 to 54 percent on more than 60 nations. He says these “reciprocal” tariffs are based on the taxes other countries charge the U.S. However, after Wall Street investors responded negatively, Trump quickly paused these tariffs for several months. He urged countries to strike trade deals with the U.S. instead. He has since announced agreements with the European Union, the United Kingdom, Vietnam, Indonesia, the Philippines, Japan, and South Korea.

Trump has threatened some of his highest tariffs against China, a source of many low-cost goods that Americans have long relied upon (see “Your Home Without China,” below). At one point, Trump imposed a 145 percent tax on Chinese products. He then lowered it to 30 percent to encourage American companies not to outsource production there. He’s imposed a 50 percent tariff on all imports from Brazil, partially in response to what he says is its unfair treatment of Brazil’s former president Jair Bolsonaro, who was convicted for attempting a coup. As punishment for buying Russian oil, he also imposed a 50 percent tariff on India. Trump has also singled out Mexico and Canada. His proposed 25 percent tariffs on most imports from Mexico and 35 percent on most Canadian goods is supposed to pressure both nations to crack down on illegal drugs and migrants entering the U.S. (Both nations say they’ve already taken a tougher stance on these.)

In what President Trump says is an effort to boost the competitiveness of American industries, he’s also targeted specific products with his levies. Those include a 50 percent tariff on foreign steel and aluminum, as well as a 25 percent tariff on foreign cars and auto parts. It also includes a 30 percent tariff on upholstered furniture.

Many economists and business leaders remain skeptical of Trump’s tariff campaign and its ability to reverse the drop in American manufacturing employment that began in the 1980s.

“There are better ways to do economic development than causing conflicts with our trading partners and distorting prices domestically,” says Mary Lovely, senior fellow at the Peterson Institute for International Economics, a nonpartisan think tank. “Tariffs don’t create jobs. They shift activity from one set of jobs to another.”

Because of automation, present-day factories require fewer workers than those of the 20th century. Still, there aren’t enough American workers willing to take existing manufacturing jobs: About 400,000 American manufacturing jobs remain unfilled, according to the Bureau of Labor Statistics. Some experts say that the tariffs could hurt U.S. manufacturing, as more than 40 percent of U.S. imports are parts and materials needed for the kind of domestic production that Trump wants to bring back.

Many economists and business leaders remain skeptical of Trump’s tariff campaign and its ability to reverse the drop in American manufacturing employment that began in the 1980s.

“There are better ways to do economic development than causing conflicts with our trading partners and distorting prices domestically,” says Mary Lovely, senior fellow at the Peterson Institute for International Economics, a nonpartisan think tank. “Tariffs don’t create jobs. They shift activity from one set of jobs to another.”

Because of automation, present-day factories require fewer workers than those of the 20th century. Still, there aren’t enough American workers willing to take existing manufacturing jobs. There are about 400,000 American manufacturing jobs unfilled, according to the Bureau of Labor Statistics. Some experts say that the tariffs could hurt U.S. manufacturing. More than 40 percent of U.S. imports are parts and materials needed for the kind of domestic production that Trump wants to bring back.

But some business leaders who say their industries have been harmed by unfair trade practices are enthusiastic about the levies. The tariffs on aluminum “enable us to begin investing again and bring on more production here in the U.S.,” says Jesse Gary, chief executive of Century Aluminum, a Chicago-based aluminum producer.

Many economists point to the last time the U.S. raised tariffs this high, nearly 100 years ago (see timeline slideshow, below). President Herbert Hoover sought to preserve jobs during the Great Depression. Instead, many experts say, those tariffs worsened the crisis.

Other economists worry that tariffs will hit lower-income Americans, who rely on inexpensive imported goods, the hardest.

“Lower-income families spend a greater share of their budget on imported goods than higher-income families do,” says Ernie Tedeschi, director of economics at the Budget Lab at Yale.

But some business leaders who say their industries have been harmed by unfair trade practices are excited about the tariffs. The tariffs on aluminum “enable us to begin investing again and bring on more production here in the U.S.,” says Jesse Gary, chief executive of Century Aluminum, a Chicago-based aluminum producer.

Many economists look to the last time the U.S. raised tariffs this high. It was nearly 100 years ago when President Herbert Hoover sought to preserve jobs during the Great Depression (see timeline, below). Instead, many experts say, those tariffs worsened the crisis.

Other economists worry that tariffs will hit lower-income Americans, who rely on inexpensive imported goods, the hardest.

“Lower-income families spend a greater share of their budget on imported goods than higher-income families do,” says Ernie Tedeschi, director of economics at the Budget Lab at Yale.

In the months since the president announced the tariffs, the multiple pauses, rate changes, and court challenges have created a lot of uncertainty for U.S. businesses. The continually evolving tariffs have made it difficult for many companies to decide where to source materials and how much to charge for their products.

Eagle Creek, a Colorado-based luggage company that manufactures products in Indonesia and Vietnam, paused hiring and salary increases in July because of uncertainty about how tariffs would affect business expenses. “It really impacts every single choice we can make as a business,” says Travis Campbell, the company’s chief executive.

In the months since the president announced the tariffs, there has been a lot of uncertainty for U.S. businesses. Multiple pauses, rate changes, and court challenges have created unease. The continually evolving tariffs have made it difficult for many companies to decide where to source materials and how much to charge for their products.

Eagle Creek, a Colorado-based luggage company that manufactures products in Indonesia and Vietnam, paused hiring and salary increases in July because of uncertainty about how tariffs would affect business expenses. “It really impacts every single choice we can make as a business,” says Travis Campbell, the company’s chief executive.

Most economists agree that the cost of tariffs is likely to trickle down from businesses to consumers. Though so far, price increases have generally been more muted than many experts expected. In part, this may be because many companies raced to stockpile goods before any tariffs kicked in, giving them a significant cushion before they had to start paying the levies. But the prices of appliances, furniture, and toys started to tick up notably this summer, according to data from the Bureau of Labor Statistics.

According to Lovely, the costs that consumers ultimately will have to bear depends on broader economic conditions, such as whether the economy continues growing or goes into a downturn, such as a recession.

“If the economy stays strong, retailers think they’ll be able to pass more of the price along,” she says. “If we go into a recession, then it’s going to be very hard for retailers . . . to raise prices because consumers already won’t be buying.”

Most economists agree that the cost of tariffs is likely to be passed down from businesses to consumers. Though so far, price increases have generally been smaller than many experts expected. In part, this may be because many companies raced to stockpile goods before any tariffs kicked in. Companies gave themselves a significant cushion before they had to start paying the levies. But the prices of appliances, furniture, and toys started rise this summer, according to data from the Bureau of Labor Statistics.

According to Lovely, the costs that consumers ultimately will have to bear depends on broader economic conditions, such as whether the economy continues growing or goes into a downturn, such as a recession.

“If the economy stays strong, retailers think they’ll be able to pass more of the price along,” she says. “If we go into a recession, then it’s going to be very hard for retailers . . . to raise prices because consumers already won’t be buying.”

President Trump has relied on a 1977 law known as the International Emergency Economic Powers Act (IEEPA) to implement many of his tariffs without Congressional approval.

IEEPA gives the president sweeping economic powers if he declares a national emergency. Trump used IEEPA to impose the baseline 10 percent tariff on all imports and the reciprocal tariffs on dozens of countries after declaring a national emergency over the U.S. trade deficit; and to hit Mexico, Canada, and China with levies by declaring a national emergency over illegal drugs and immigration.

In April, a group of 12 states and five small businesses sued the Trump administration, arguing that the president’s tariffs were unconstitutional because IEEPA doesn’t explicitly grant him the power to levy tariffs.

In August, the U.S. Court of Appeals for the Federal Circuit ruled that the president’s use of IEEPA to impose tariffs on U.S. trading partners was illegal. The administration appealed the ruling, and as of press time, the Supreme Court was scheduled to hear arguments in early November. The tariffs will remain in effect until the Court issues a ruling.

The Trump administration asserts that the president has other ways to implement tariffs, such as a legal statute that allows him to impose them for imports deemed a potential national security threat. Trump has already used this statute, known as Section 232, to set tariffs on products including steel and aluminum.

The legal challenges to Trump’s use of emergency powers raise broader questions about presidential authority. Kathleen Claussen, a law professor at Georgetown University, says whichever way the Court rules, it will be determining “where the line is between what Congress can do and what the president can do” when it comes to global trade.

President Trump has relied on a 1977 law known as the International Emergency Economic Powers Act (IEEPA) to implement many of his tariffs without Congressional approval.

IEEPA gives the president sweeping economic powers if he declares a national emergency. Trump used IEEPA to impose the baseline 10 percent tariff on all imports and the reciprocal tariffs on dozens of countries after declaring a national emergency over the U.S. trade deficit. He declared a national emergency over illegal drugs and immigration to impose the higher tariffs on Mexico, Canada, and China.

In April, a group of 12 states and five small businesses sued the Trump administration. They argue that the president’s tariffs were unconstitutional because IEEPA doesn’t explicitly grant him the power to levy tariffs.

In August, the U.S. Court of Appeals for the Federal Circuit ruled that the president’s use of IEEPA to impose tariffs on U.S. trading partners was illegal. The administration appealed the ruling, and as of press time, the Supreme Court was scheduled to hear arguments in early November. The tariffs will remain in effect until the Court issues a ruling.

The Trump administration says that the president has other ways to implement tariffs. There is a legal statute, known as Section 232, that allows him to impose them for imports deemed a potential national security threat. Trump has already used this statute to set tariffs on products including steel and aluminum.

The legal challenges to Trump’s use of emergency powers raise bigger questions about presidential authority. Kathleen Claussen, a law professor at Georgetown University, says whichever way the Court rules, it will be determining “where the line is between what Congress can do and what the president can do” when it comes to global trade.