If you live in the US, congratulations — you are now a foot soldier in what has been called “the dumbest trade war in history.” And if you live in one of the top three countries that trade most with the US (Canada, Mexico, and China), apologies: you are part of this as well.
Donald Trump loves tariffs despite regularly misrepresenting how they work, and after months of saying he would impose them on goods coming into the US, he made good on his promise this week: there is now an additional 10 percent tax on all products from China. The tariffs on Canadian and Mexican goods have been paused for a month, after both countries conceded to certain border measures. (Canada, for its part, apparently agreed to border policies it was already doing.) But we surely have not heard the last of Trump’s favorite trade policy.
There’s a deep misunderstanding of tariffs, in part thanks to Trump’s false claims. Who pays tariffs? What do they actually do? How do they affect consumers? Let’s talk about it.
What’s a tariff, exactly?
Leave the word “tariff” aside for a second and think about it like this: it’s a tax. Specifically, tariffs are a tax set by the government on goods and services that come from abroad. They can be wide reaching (a tax on everything coming in from China) or narrow (a tax on certain items from a certain country) and typically are a percentage of the value of the thing being imported.
Trump’s executive order on tariffs on Chinese products is a blanket 10 percent tax on everything coming in from the country. His proposed plans for Canada and Mexico are similarly broad: everything imported into the US from these countries would get a 25 percent tax applied, except for Canadian oil, which would be pegged at 10 percent.
Like many of Trump’s actions in the flurry of the last few weeks, the way he imposed tariffs is of questionable legality. As Politico reports, Trump levied tariffs in a way that no other president has in history, using a 50-year-old law called the International Emergency Economic Powers Act (IEEPA). The US Constitution gives Congress the power to levy tariffs, but in practice and over the course of many decades, the president has been given more authority to set tariff policy, particularly on the basis of national security. While the manner that Trump went about imposing sweeping tariffs is unique, it’s part of a larger trend in US history.
“Congress has become less effective every subsequent year for almost 40 years,” says Kathryn Anne Edwards, an economist and policy consultant. “As a result of Congress being incapable of passing meaningful reforms, the office of the presidency has expanded to the fullest extent possible. The executive branch has taken up basically all of the air in the room.”
What we’ve seen this week is a rerun of Trump’s tariff strategy during his first term. In 2019, he also attempted to use the IEEPA to threaten a 5 percent tariff on Mexico but ultimately backed down. Trump had announced a series of border actions Mexico would take — but later reporting indicated that Mexico had already agreed to them months before. (Sound familiar?)
Trump and Vice President JD Vance have regularly lied about tariffs (or have no concept of how they work, which is maybe even more concerning). At many rallies during the 2024 campaign, Trump said other countries would be taxed using US import tariffs. That claim is “unequivocally false,” Edwards says.
A tariff is paid by the entity importing the product, whether that’s Target, or Apple, or the Trump campaign merch store, for example. Sometimes it could even be individual shoppers (more on that later). The money goes into the US Treasury and is a relatively small portion of the federal revenue: it’s amounted to less than 2 percent for the last 70 years. Last year, Customs and Border Protection collected $77 billion in tariffs, or 1.57 percent of the federal revenue.
Even if a department store pays the tariff initially, that additional cost is likely to burden consumers — companies are in business to make money, after all.
“If Target has to pay on every good that they import from Canada and sell in their stores, Target is paying that tax, but they’re not paying it, paying it,” Edwards says. “They’re passing it on to somebody else.”
Economists agree that the cost of tariffs ultimately fall on consumers — and there’s data from Trump’s first presidency to illustrate that point.
“You can’t control the price consequences of tariffs”
In 2018, Trump imposed steep tariffs on imported washing machines as he vowed to put American businesses first, a move celebrated by companies like Whirlpool. But researchers at the Federal Reserve and the University of Chicago found something interesting: not only did the price of washing machines go up but also the price of dryers. All in all, the tariffs cost consumers around $1.5 billion a year, while the revenue from the tariffs the US collected was just $82 million. Washing machines went up by around $86 and dryers went up by $92, the researchers found, even though dryers were not subject to tariffs.
Washers and dryers are typically purchased in pairs, and a likely explanation for the parallel price increases is that companies selling the appliances didn’t want to raise the price of one but not the other — instead of bumping up the washer by 20 percent, they spread the increase across the two products, for example. And it wasn’t just imported washers and dryers that got more expensive: domestic brands (including Whirlpool) also bumped up their prices.
“It’s a lesson in the fact that you can’t control the price consequences of tariffs,” Edwards says.
When will we feel the effects of tariffs?
The ripple effects of tariffs depend on a lot of factors, including how tariffs are implemented, the industries they cover, and how companies in those industries are structured, to name a few. Trump’s tariffs are sweeping and immediate, as opposed to targeted at specific products or industries and phased in over time.
“Consumer-facing companies have every incentive not to shock consumers,” says Monica Gorman, managing director at Crowell Global Advisors and deputy assistant secretary for manufacturing under former President Joe Biden. “They’re going to want to do their best to continue to provide a competitively priced product for consumers. But the importer pays the tariffs, so at some point those costs have to be absorbed somehow.”
It also depends on what the market for that product or industry is — competitive industries might wait until they use up existing inventory of purchased goods and then raise prices as new inventory comes in, says Susan Helper, professor of economics at Case Western Reserve University and chief economist at the Department of Commerce under former President Barack Obama. If they have market power, they might raise prices immediately, having noticed in advance that the price of their products will rise.
“The foreign companies can also decide that they may absorb some of the tariffs — so that if the tariff is 25 percent, they may lower their price so that the consumer doesn’t feel the full 25 percent tariff,” Helper says. “That’s not typical, but it does happen in some cases.”
How companies respond to tariffs also depends on what other choices consumers have — say, someone who was considering buying a foreign car and now will opt for an American one, Helper says. In competitive industries where shoppers have a substitute, companies may try to minimize the price increase. But ultimately, consumers have two options: they can find a substitute or simply buy less.
Do tariffs create jobs in the US?
A cornerstone of Trump’s sales pitch for tariffs on imports has been that the move would create and protect jobs in the US.
“The higher the tariff, the more likely it is that the company will come into the United States and build a factory in the United States so it doesn’t have to pay the tariff,” Trump said in one interview. Research has shown some previous tariffs Trump imposed didn’t bring in jobs in those industries.
Helper says she is more sympathetic to the argument that tariffs could create jobs than many economists, but with an important caveat: tariffs have to be part of a larger program to nurture a domestic industry. And there are important considerations to keep in mind when anyone promises to reshore lost manufacturing jobs — for one, you tend not to get many jobs to begin with because so much of the work is automated.
“Other reasons you might want to do it are, [that] the manufacturing jobs are often good jobs or there’s a national security reason,” Helper says. “National security” can mean ramping up domestic capacity to manufacture N95 masks in case of another pandemic, for example.
“We don’t get to go back in time.”
Tariffs might also encourage domestic innovation, but they can’t be the only mechanism. Helper, who also worked for the Biden administration, notes the tariff hikes under Biden on things like Chinese solar panels, semiconductors, and electric vehicles were in conjunction with other efforts to build nascent industries.
“It’s not efficient, really, to have tariffs be your only way, your only mechanism. So this is where I would part ways with the Trump administration,” Helper says.
Manufacturing jobs peaked in the US in 1979. Edwards says the idea of tariffs as a way to bring back jobs is understandably appealing but isn’t realistic.
“We don’t get to go back in time,” Edwards says. “Wasn’t it great in the ’50s when all men had unionized jobs and everybody was fine? But we don’t get to go backwards.”
Here again, the washing machine study offers an eye-opening detail. In that example, about 1,800 jobs were created. But researchers estimate that it cost consumers about $815,000 per job.
What’s this about Temu and Shein orders?
Before consumers feel the 10 percent tariff, there’s something much more immediate that’s already causing sticker shock — and it all goes back to one sentence in Trump’s executive order. Millions of shoppers are about to learn about something called the de minimis exemption.
Under this rule, packages valued under $800 could enter the US duty free, thus avoiding a whole slew of existing tariffs. Trump ended the exemption for packages from China, meaning businesses and consumers who previously didn’t have to pay tariffs on those parcels are now on the hook — not only for the added 10 percent tax but also for things like the base tariffs corresponding to the specific item and China-specific tariffs Trump imposed during his first presidency.
“Companies could choose to absorb the costs, pass along the costs to consumers, or do some combination thereof,” says Gorman. “That said, it’s important to note that the tariffs these products are now subject to are significant.”
If you order from ultracheap discount store Temu, fast-fashion giant Shein, Amazon Haul, or other dropshipping businesses, your orders are going to cost you more, plain and simple. What that looks like exactly will depend on how e-commerce platforms decide to handle it. It could mean you have to pay the taxes to get your package from the carrier; platforms could add it to the end, like a processing fee; or retailers could fold it into the price of the item.
A knock-on effect of de minimis exemptions ending is that shoppers’ packages could be delayed while in transit. Previously, these lower-value parcels didn’t go through the same inspection process by Customs and Border Protection (CBP) — but under Trump’s executive order, that would all change. Now, hundreds of millions of sub-$800 packages will be subject to inspections by CBP, and the companies shipping the packages will need to complete more detailed paperwork. (An Oxford Economics study previously estimated that a similar bill restricting de minimis exemptions for China and Russia would cost the US $3.2 billion a year, amounting to the salaries of 39,000 CBP officers. The study estimates the move would generate $627 million in revenue, with taxpayers potentially footing the bill for the difference.)
“Much remains to be seen as to how shippers of these packages will address these new paperwork requirements,” Gorman told The Verge via email. “But given the significant volume of de minimis packages in recent years from China, it is likely that we will see delays and confusion in the near-term. Packages coming in via mail and the U.S. Postal Service (as opposed to through major cargo carriers) will probably face additional logistical challenges.”
Great question — I don’t know! As we’ve already seen, Trump’s tariffs are subject to change at literally any moment, so tariffs on China could also be rolled back or paused at some point, just like those planned for Canada and Mexico. Trump uses tariffs as a bargaining chip to get other things he wants, whether that’s more money and resources thrown at the borders or to create things like a “fentanyl czar.” China has already announced retaliatory tariffs and other actions in response to Trump’s, and Canada and Mexico have threatened to do the same. Check back in a few weeks and we’ll see where we’re at.
