What to know about looming tariffs on foreign goods

President Donald Trump has announced plans to impose tariffs on foreign goods, saying that they will bring the government the funds needed to pay for the policies he intends to enact. 

But what exactly is a tariff?

A tariff is a tax charged on items and services imported into the United States from outside the country. The extra charge, a percentage of the cost of the purchase, is collected for the federal government by U.S. Customs and Border Protection and goes into the U.S. Treasury. 

Trump has framed tariffs as a way to punish other countries and encourage American jobs without hurting consumers. 

American companies forced to pay more for the items needed to make their products typically pass those additional costs on to the consumer, as do businesses that sell imported goods. A 2018 Trump administration tariff on all imported residential laundry machines, for example, drove prices up an average of $86 per washing machine and $92 per dryer, according to an April 2019 working paper published by the University of Chicago Becker Friedman Institute for Economics. 

Throughout his 2024 campaign, Trump said that upon taking office he would immediately institute a 25% tariff on imports from Canada and Mexico, a 60% tariff on Chinese goods, and at least a 20% tariff on all other imports, according to CNN. Trump said on Jan. 21 that the Mexico and Canada tariffs would be delayed until Feb. 1.

On Jan. 26, Trump announced a 25% tariff on all imported goods from Colombia, a major source of coffee and cut flowers, after a dispute with the country over immigration policy, and threatened to increase it to 50% in a week. Colombian President Gustavo Petro quickly responded by announcing a 25% tariff on all American imports, before both sides reportedly reached an agreement and canceled the sanctions. 

Trump also told congressional Republicans on Jan. 27 that he plans to impose additional tariffs on imported aluminum, copper, and steel, according to a Washington Post report.

What happens when tariffs are imposed?

Trump calls tariffs a tax on foreign countries; however, they are paid exclusively by American businesses and individuals who buy goods and services from other countries. 

When the cost for importers and manufacturers of most commonly imported products goes up, those costs are reflected in increased prices when the final products are then sold. Consumers can expect to see higher prices for foreign-made automobiles, pharmaceuticals, oil, car parts, cellphones, electronics, and computers, as well as for American-made items built with imported parts. 

How do tariffs affect consumers?

Economists say tariffs result in higher prices for consumer goods because businesses charge more to cover their added expenses. A 2020 National Bureau of Economic Research working paper said, “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers.”

In August 2024, economists at the Peterson Institute for International Economics think tank assessed Trump’s proposed tariffs and found that they would cost a typical U.S. household an additional $2,600 annually, mostly due to businesses raising prices. They noted that while the policies would hurt families at all income levels, “the losses are greatest for those at the bottom of the income distribution.”

What will Trump’s tariffs do to the economy overall?

The nonprofit Tax Foundation estimates that if Trump’s tariffs went into effect, even without any retaliation from other countries, the U.S. economy would shrink by hundreds of billions of dollars over a decade.

The additional inflation caused by the tariffs would mean an average family would pay $1,560 more per year, according to a December 2024 analysis by the Senate Budget Committee.

American farmers who export their crops may be hit especially hard by the tariffs. When foreign countries responded to Trump’s 2018 agricultural tariffs with their own retaliatory tariffs, producers lost more than $27 billion in exports in 2018 and 2019, according to the U.S. Department of Agriculture.