President Donald Trump is set to announce a new wave of tariffs on imports from three of the United States’ closest trading partners: Mexico, Canada, and China. The new tariffs come as part of Trump’s ongoing trade strategy, despite the widespread criticism tariffs face from economists.
What Are Tariffs?
Tariffs, essentially taxes on imported goods, are commonly used to regulate international trade and protect domestic industries from foreign competition. They can take several forms, with the most common being ad valorem tariffs, which are calculated as a percentage of the import’s value. The 25% tariff Trump plans to impose on goods from Mexico and Canada, such as avocados and lumber, is an example of this type.
There are also specific tariffs, which are fixed fees per unit. For example, a $1 tariff per Mexican avocado would be a specific tariff. Additionally, some tariffs are structured as tariff-rate quotas, where goods are taxed at one rate up to a certain threshold, after which a higher tax rate applies.
Come Make Your Product in America
While the foreign companies exporting goods to the U.S. are not responsible for paying these tariffs, U.S. businesses importing these goods are. These companies pay the tariffs directly to the federal government. As a result, many businesses pass these costs on to consumers. Tariff proponents, including President Trump, argue that the increased prices could lead consumers to buy domestically produced goods, or encourage companies to establish manufacturing facilities within the U.S. to avoid paying the levies.
As Trump remarked at the World Economic Forum in Davos, Switzerland, last week, “Come make your product in America. But if you don’t make your product in America, which is your prerogative, then very simply you will have to pay a tariff.”
Impact of Tariffs on U.S. Consumers
White House spokeswoman Karoline Leavitt confirmed on January 31 that President Trump will impose 25% tariffs on imports from both Mexico and Canada, in addition to a 10% tariff on Chinese imports. These measures have been justified as a response to the illegal fentanyl trade, which Trump claims these countries have allowed into the U.S.
Economists and trade experts, however, have frequently criticized tariffs for failing to significantly benefit domestic industries. For example, the Peterson Institute for International Economics argues that tariffs have historically been ineffective at reviving U.S. manufacturing.
One major issue with tariffs is their potential to increase costs for U.S. consumers. While large corporations like Walmart or Target pay the tariffs, they often pass these costs along to the public. As a result, typical American households could face an estimated $2,400 in additional costs each year if all of Trump’s proposed tariffs are enacted, according to financial services firm ING.
Tariffs and Inflation
The proposed rates could push the current effective U.S. tariff rate from 2.4% to 31%, a historic high. According to Capital Economics, this surge could lead to a significant spike in inflation, possibly driving it up to 4%, well above the Federal Reserve’s 2% target. This inflationary pressure would complicate the Federal Reserve’s ability to ease monetary policy and could push the economy back to the inflation levels seen in mid-2023 when the Fed had aggressively raised interest rates.
Capital Economics noted that any tariff enacted this year would contribute to a rebound in consumer price inflation, making it harder for the Fed to bring inflation under control.
Trump’s Reasons for Support
President Trump has consistently defended this move as a means to raise government revenue and protect U.S. industries. His administration has argued that tariffs enacted in his first term, particularly on some Chinese goods, did not lead to significant inflation. However, Capital Economics argues that these tariffs were too small to have a noticeable inflationary impact.
Trump has also pointed to tariffs as a way to boost U.S. manufacturing. In an October 2024 interview, he stated, “No. 1 is for protection of the companies that we have here, and the new companies that will move in because we’re going to have thousands of companies coming into this country.”
While there is some evidence of success in certain industries, such as a slight increase in jobs in washing machine manufacturing (with companies like Whirlpool adding 1,800 new jobs), overall U.S. manufacturing jobs declined during Trump’s first term. From 2016 to 2020, the number of manufacturing jobs fell from 12.4 million to 12.2 million, a drop that could be attributed to various factors, including the COVID-19 pandemic and broader economic trends affecting the sector.
Also Read: Tariffs Against Mexico, Canada, and China to Begin on February 1: Here Is What White House Said
