President Donald Trump has announced that he will impose tariffs on goods from Canada, China, and Mexico, with the first tranche taking effect on February 1. The tariffs will be 25% on Mexico and Canada, and 10% on China. Economists warn that the tariffs will have a negative impact on U.S. consumers, with prices likely to rise and choices for products and brands decreasing.
The tariffs will be a tax on foreign imports, and U.S. businesses that import goods will pay the tax to the federal government. Many businesses will pass these extra costs on to customers, either directly or indirectly, which is why tariffs generally trigger higher prices for consumers.
Exemptions may be granted to certain imports, which could limit the damage to consumers. However, the specifics of the exemptions are still unclear, and it is unknown which imports will be exempt.
The tariffs are expected to raise about $1.3 trillion in revenue through 2035, which could be used to partially offset the cost of tax cuts. However, a 10% additional tariff on China would shrink the U.S. economy by $55 billion during Trump’s second term, assuming China retaliates with its own tariffs.
Economists expect more tariffs in the future, and warn that broad-based, universal tariffs will do significant damage to the U.S. economy. Consumers could pay for tariffs both directly and indirectly, with tariffs on China likely to have the largest direct impact.
The tariffs could also lead to a trade war, with other nations responding with retaliatory tariffs. This could cause U.S. producers to lose sales abroad, and destroy jobs. Tariffs may also have the unintended consequence of destroying jobs, as they create “a lot of collateral damage along the way.”