There are still more than 50 days until President Donald Trump takes office, but he is already paving the way for a trade war that could shake up the global economy.
President Trump on Monday signed an executive order imposing a 25% tariff on imports from Canada and Mexico and an additional 10% tariff on imports from China in retaliation against drugs and migrants crossing the U.S. border. Announced.
During his campaign, the president-elect promised universal tariffs on all goods imported into the United States from abroad, but these specifically target the United States’ three largest trading partners. President Trump said he would sign the executive order on January 20, his first day in office.
Here’s what you need to know about tariffs and how President Trump’s plan to implement them will play out.
What is a price list?
Tariffs are taxes levied on imported or foreign goods brought into the United States.
Who pays the customs duties?
This is a question many Americans had after the election. Although President Trump has said that foreign countries pay tariffs, they are actually paid by U.S. companies that import goods from overseas.
Therefore, if a U.S. automaker imports a part from Mexico, it must pay duties on the part once it arrives in Mexico.
What does the United States import from Canada, Mexico, and China?
U.S. companies imported more than $1.2 trillion from Canada, Mexico, and China in 2023. These three countries are the United States’ largest trading partners. Tariffs for all three countries are essentially taxes on these imported goods.
Canada is a major exporter of crude oil and other gas products to the United States. Mexico has become a major exporter of cars and auto parts in recent years (Tesla announced plans to build a factory in the country last year, but later abandoned the project while Elon Musk supported the Trump campaign). (Canceled). China is a major exporter of electronic equipment such as phones and laptops.
Does President Trump need Congressional approval to pass tariffs?
Republicans hold majorities in both houses of Congress, meaning Mr. Trump has significant power to pass legislation through Congress.
But the president also has the power to enact tariffs without Congressional approval in cases related to national security, the protection of U.S. industry, or a “national emergency.” Litigation against tariffs will be difficult for a very wide range of reasons. court.
Why is President Trump imposing tariffs?
The United States imports more goods than it exports, which means it has a trade deficit. Although not all economists agree that trade deficits are bad, President Trump has railed against them for years, and tariffs are his preferred means of dealing with them. .
Tariffs became a major issue during President Trump’s first term in 2018, when he imposed tariffs on some products and metal imports from China. He also threatened to impose tariffs on Mexican imports in retaliation for the large number of migrants who were crossing the border at the time. President Trump eventually lifted the tariffs in 2020.
In other words, this is all a bit of deja vu.
In President Trump’s mind, the way tariffs work is that high tariffs incentivize American companies to move manufacturing from overseas to the United States.
Weeks before the election, President Trump said, “We just need to build factories in America. There are no tariffs.”
However, for many companies, it is nearly impossible to escape the complex global manufacturing ecosystem. It takes years to get a factory up and running, so even if companies theoretically wanted to ramp up domestic manufacturing to avoid tariffs, Trump’s presidency would be over by the time they were ready. There is a high possibility that there are.
Will tariffs affect consumers?
Consumers will almost certainly feel the impact through price increases.
President Trump had advocated imposing a 60% tariff on imports from China and imposing tariffs of 10% to 20% across the board. Economists estimate that such tariffs could increase household spending by between $1,900 and $7,600, raising inflation by 1.4% to 5.1%. This is because companies simply pass on the cost of tariffs to consumers. Executives at several U.S. companies, including Walmart, Columbia Sportswear and AutoZone, all say they will eventually have to raise prices through tariffs.
American consumers seem to be aware of this move. In a recent Harris/Guardian poll, nearly two-thirds of Americans said they expected prices to rise if President Trump introduced broad tariffs.
How will other countries react to American tariffs?
Not kind. Countries whose exporting countries are subject to tariffs can impose tariffs on U.S. imports in retaliation.
After President Trump imposed tariffs on imports from China, China imposed tariffs on imports from the United States, including soybeans and corn. The move ultimately hurt U.S. farmers who relied on trade with China. Without Congressional approval, President Trump will provide relief to farmers who lost at least $10 billion in export revenue after the tariffs. The Council on Foreign Relations, a U.S. think tank, later estimated that up to 92% of the revenue the U.S. collects from tariffs on Chinese imports ends up being spent on paying farmers.
Since President Trump’s latest tariff announcement, the Chinese embassy has given an ominous response: “There are no winners in a trade war.” Meanwhile, Mexico’s Economy Minister Marcel Ebrard said before the election that his country would consider retaliation.
“If you impose a 25% tariff on me, I have to respond with a tariff as well,” he said. “Structurally, the conditions are in place to play in Mexico’s favor.”
