Since re-entering office, President Trump has issued a flurry of tariffs in an effort to rewire the global economy.
At 12:01 a.m. Eastern time on Wednesday, his most aggressive moves yet took effect, imposing double-digit rates on dozens of countries. About 13 hours later, he said he would halt implementation of those tariffs for the next 90 days, citing new talks with foreign nations on trade.
Mr. Trump kept new tariffs on China in place and he said he would raise them even further, to a total of 125 percent, after Beijing announced a new round of retaliation.
The growing trade tensions have created extreme volatility in financial markets. Economists have been worrying that the United States could slip into recession, especially if tariffs escalate.
Who pays for tariffs, and where does the money go?
A tariff is a government surcharge on products imported from other countries.
Tariffs are paid by the companies that import the goods. The revenue from U.S. tariffs is paid by U.S. importers to the U.S. Treasury Department.
For example, if Walmart imports a $100 shoe from Vietnam — which faces a 46 percent tariff — Walmart will owe $46.00 in tariffs to the U.S. government.
What happens next?
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Walmart could try to force the cost onto the Vietnamese shoe manufacturer, by telling it Walmart will pay less for the product.
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Walmart could cut into its own profit margins and absorb the cost of the tariff.
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Walmart could raise the price of the shoes at its stores.
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Or, some combination of the above.
Economists found that, when Mr. Trump put tariffs on China in his first term, most of that cost was passed on to consumers. But economic studies found that his tariffs on foreign steel were a bit different; only about half of those costs were passed on to customers.
Why is Trump imposing tariffs?
Mr. Trump’s point of view appears to be that any trade deficit — the value of goods the U.S. imports from a country, minus what the U.S. sends it as exports — is bad. He has long described bilateral trade deficits as examples of America being “ripped off” or “subsidizing” other countries.
America’s Trade Deficits and Surpluses With Other Countries
The president and his advisers say their goal is to make the tariffs so painful that they force companies to make their products in the United States. They argue that this will create more American jobs and push up wages.
But Mr. Trump has also described tariffs as an all-purpose tool, forcing Canada, Mexico and China to crack down on the flow of drugs and migrants into the United States. The president also maintains that tariffs will rake in huge sums of revenue that the government can use to pay for tax cuts.
Economists say that tariffs cannot simultaneously achieve all of the goals that Mr. Trump has expressed. In fact, many of his aims contradict one another. The same tariffs that are supposed to boost U.S. manufacturing are also making life painful for U.S. manufacturers, by disrupting their supply chains and raising the cost of their raw materials.
“All of these tariffs are internally inconsistent with each other,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics, a Washington think tank. “So what is the real priority? Because you can’t have all those things happen at once.”
How have U.S. trading partners responded?
The Trump administration has signaled that it was ready to negotiate deals, saying that 70 governments had approached the United States to try to roll the levies back. Other countries are fighting back.
China is now imposing tariffs totaling 84 percent on all U.S. products, raising levies by 50 percent to match Mr. Trump’s latest tit-for-tat increase. It also barred more than a dozen American companies from doing business in China or with Chinese companies, and halted chicken imports from five of America’s biggest exporters.
China and the United States have now taken a series of steps in just one week that until very recently would have been almost unimaginable. For nearly half a century after the death of Mao Zedong, the two countries seemed on a course toward ever greater economic integration. Some experts even referred to the partnership of China and America as “Chimerica.”
Canada has vowed to defend its workers, businesses and economy from new tariffs and threats from Mr. Trump. Prime Minister Mark Carney recently said it was clear that the United States was “no longer a reliable partner.” In March, after U.S. steel and aluminum tariffs took effect, the Canadian government said that it would impose new retaliatory tariffs on $20 billion worth of U.S. imports, on top of the 25 percent tariffs announced previously.
Mexico made a major effort to fend off tariffs, sending more than two dozen accused cartel leaders to the United States to face criminal charges and dispatching troops to fentanyl laboratories and the U.S. border.
What is happening with stock markets?
The benchmark S&P 500 index was on the verge of a bear market, defined as a drop of 20 percent or more from its last high, before rallying on news of the 90-day pause in many of the Trump tariffs.
A line chart showing the stock markets of 6 countries since Trump’s inauguration.
How could tariffs affect consumer prices?
Mr. Trump’s tariffs target countries that supply a wide variety of goods to the United States. For American families, the very likely result is higher prices at grocery stores, car dealerships, electronics retailers and clothing outlets.
Mr. Trump’s 25 percent tariffs on imported vehicles are already sending tremors through the auto industry, prompting companies to stop shipping cars to the United States, shut down factories in Canada and Mexico and lay off workers in Michigan and other states.
Nearly half of all vehicles sold in the United States are imported, as well as nearly 60 percent of the parts used in vehicles assembled in the United States.
Since the North American free trade zone was created in 1994, American and foreign-owned automakers have built supply chains that cross the borders of the United States, Canada and Mexico.
What’s an Import?
National borders blur in vehicle production, with parts often sourced from around the world.
For example, the 2024 Chevrolet Blazer, a popular sport utility vehicle made by General Motors, is assembled at a plant in Mexico using engines and transmissions that are produced in the United States.
Stellantis idled factories in Canada and Mexico that make Chrysler and Jeep vehicles and laid off 900 U.S. workers who supplied those factories with engines and other parts.
Audi, the luxury division of Volkswagen, and Jaguar Land Rover, based in Britain, both paused their exports to the United States.
The Yale Budget Lab estimated that Mr. Trump’s new auto tariffs, which took effect on Thursday, would raise vehicle prices 13.5 percent on average, the equivalent of an additional $6,400 for the price of an average new 2024 car. In total, American households would pay $500 to $600 more, on average, as a result of the tariffs, the group estimated.
The Wirecutter has advice about how consumers can cope with the effects of aggressive tariffs.
What happens next?
Jerome H. Powell, the chair of the Federal Reserve, recently warned that President Trump’s tariffs risk stoking inflation and slowing down growth. The latest monthly reading on consumer prices is released on Thursday, though the full effects of the tariffs have yet to trickle into the economy broadly.
What is the history of tariffs in the U.S.?
1789: At its founding, the United States relied heavily on tariffs to finance the federal government and protect domestic manufacturers, as proposed by Alexander Hamilton, the first Treasury secretary.
1828: The federal government passed tariffs averaging 38 percent to shield the country’s manufacturing sector from foreign competitors. These were labeled the “Tariff of Abominations” by Southern states, whose economies relied on exporting raw materials and importing manufactured goods, leading to a constitutional standoff.
1930: The Smoot-Hawley Tariff Act of 1930 was enacted after the stock market crash of 1929, in an attempt to protect U.S. businesses. Instead, as described in “Ferris Bueller’s Day Off,” the tariffs “did not work, and the United States sank deeper into the Great Depression.”
1934: Franklin D. Roosevelt signed the Reciprocal Trade Agreements Act, which gave the president the authority to negotiate bilateral trade agreements. This set the stage for more than 90 years of liberal free trade policies.
Reporting was contributed by Mark Landler, Eshe Nelson, Alexandra Stevenson, Andrew Duehren, June Kim, Jack Ewing, Karl Russell, Colby Smith, Ian Austen, Vjosa Isai, Annie Correal, Keith Bradsher and Alan Rappeport.
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