Trump's tariffs: How they work, and who would pay

State of play: Trump has vowed to implement massive, sweeping tariffs — while Vice President Kamala Harris has pointed to warnings from economists that they would reawaken inflation.

• Still, as Trump likes to point out, President Biden did keep his China tariffs in place, and Harris hasn't said she'd lift them.

The big picture: Trump is right that tariffs can raise revenue for the governments imposing them.

• But he's wrong when he claims they only punish manufacturers abroad. They can also hurt U.S. companies and consumers.

What is a tariff?

A tariff is a form of tax on on imported goods, designed to protect domestic companies from foreign competition by making those imported goods more expensive.

• In some cases, the U.S. imposes tariffs to protect U.S. companies from what it sees as unfair practices by foreign competitors.
• For example, when the Biden administration called for higher steel tariffs this year it accused China of exporting steel at below-market prices to drive out competitors and "dominate" industries like shipbuilding.

• The idea is that a tariff would make an imported product cost as much or more than similar goods produced domestically.
• Tariffs generally tend to be lower in wealthier countries than in developing ones that have "more fragile industries," according to a Council on Foreign Relations analysis.
• Tariff rates have been falling decade-by-decade since the 1930s, per the Cato Institute, the U.S. maintains high tariffs on "politically sensitive products," from textiles to trucks.

How it works: The Constitution empowers Congress to set tariffs, but the legislative branch has in part delegated that power to the president as tariffs have become less a revenue source than an instrument of foreign policy.

• Trump plans on using that delineated power to enact sweeping tariffs, with or without congressional approval.

Who pays a tariff?

Payment of a tariff imposed by the U.S. falls on the person or organization in the U.S. who imports a given product — but that's not the whole story.

Follow the money: The true economic burden of a tariff can fall on the importer, the exporter, and/or the consumer.

Let's say a U.S. importer buys hats from overseas for $12 and sells them for $20 each. If a new tariff of 50% — $6 per hat in this case — were implemented:

• The importer could raise prices on consumers by $6, to $26 — but likely lose sales in the process.
• It could keep the price steady, but reduce its profit margin from $8 per hat to $2 per hat.
• It could threaten to walk away unless its supplier cut prices by $6 — but the supplier could refuse.
• For any given product, the details of how the market is structured — the amount of competition, scale of the tariff, and so on — would decide how those costs would be divvied up.

Case in point: A 2019 study estimated that by the end of 2018, "Import tariffs were costing U.S. consumers and the firms that import foreign goods an additional $3 billion per month in added tax costs."

• Additionally, the study found the tariffs were allowing U.S. producers to increase their prices because they faced less foreign competition.
• Under both the Trump and Biden administrations, according to the Tax Foundation, trade war tariffs have generated "more than $233 billion of higher taxes collected for the U.S. government from U.S. consumers."

Tariffs and U.S. politics: A cash cow and a cautionary tale

Tariffs were the main source of U.S. government revenues from the country's founding through the Civil War, though they were not so high that they discouraged imports, according to Cato's analysis.

Yes, but: The Tariff Act of 1930 caused import duties to skyrocket — triggering retaliation, damaging world trade and deepening the Great Depression.

• In the wake of that meltdown, Congress handed tariff authority to the president and empowered the executive branch to impose tariffs to protect national security or U.S. industries.
• The use of tariffs in advanced economies began to decline after World War II, according to the Council on Foreign Relations — until recent reversals of that trend.

The Trump administration used tariffs extensively, imposing them on a number of products from China and other countries.

• Trump's tariffs — which spiraled into a trade war — were intended to hurt China by limiting access to the U.S. market, and rein in the domestic trade deficit. But studies have concluded that the trade deficit continued to grow, and U.S. companies primarily paid for the tariffs.
• One study found that Trump's tariffs hurt rural areas, but were still popular with voters there.

Nevertheless, the Biden administration kept and even expanded some of Trump's tariffs. President Biden also imposed his own tariffs, for example on Chinese electric vehicles and batteries.

Trumped up tariffs in 2024

Trump has floated a 10% or 20% tariff on all imported goods and a 60% tariff on Chinese imports if he reclaims the White House.

• In a recent Wall Street Journal survey of 39 economists, not one expert polled approved of Trump's plan to put tariffs on all imported goods.
• Trump's prior tariffs were mostly between 10% and 15% and applied to specific items — not all imports.

The bottom line: Trump's math — saying revenue from tariffs could lower U.S. budget deficits and fund child care costs — doesn't quite add up, Axios' Neil Irwin writes:

• The point of a tariff is to support domestic manufacturing activity, therefore reducing the volume of imports — and thus the revenue brought in through tariffs.
• Moreover, harmful retaliation is inevitable.

Go deeper: Trump and Biden have both embraced tariffs, but their approaches differ