Throughout the presidential campaign, candidate Donald Trump said he planned to impose steep tariffs on imports, including on goods originating in Mexico and Canada, the United States’ trading partners in USMCA, the trade agreement adopted in Trump’s first term that replaced the North American Free Trade Agreement.
In his first week in office, the new president issued a memo to several agencies calling for a thorough review of United States trade laws, trade agreements, the trade deficit, and other trade-related issues.
According to the memo, reports from the affected departments to the White House are due April 1, but the president told reporters last week new tariffs on China, Mexico, and Canada could begin as soon as February 1.
What is a tariff?
A tariff is a tax imposed by a government on goods and services imported into a country. Tariffs are designed to increase the cost of imported goods, making them less competitive against domestic products. This policy tool is often used to protect domestic industries, generate government revenue, or respond to unfair trade practices. President Trump has proposed using tariffs as a cudgel against policies he opposes, such as Mexico’s immigration control policies.
Following Colombia’s refusal to accept military planes carrying deportees last weekend, President Trump threatened to impose tariffs on Colombian imports like coffee. Colombia reversed course and agreed to accept the planes, prompting the U.S. to drop the planned tariffs.
How does a tariff differ from a duty?
While tariffs and duties are often used interchangeably, there are slight distinctions:
- A tariff refers to the overall tax policy applied to imported goods.
- A duty is the specific amount of tax or fee assessed on a particular item under that tariff policy. In essence, duties are the implementation of tariff rules. Travelers returning home from a foreign trip, for example, might pay a duty on merchandise they purchased abroad.
Where in the process of trade is a tariff assessed?
Tariffs are typically assessed at the point of entry when goods arrive at a country’s border. Importers are responsible for declaring the value and quantity of goods, after which customs authorities calculate and apply the tariff.
Who pays tariffs?
The importer pays the tariff at the time of entry. However, the cost is usually passed down the supply chain, ultimately reaching consumers in the form of higher prices for imported goods or products containing imported components. Higher prices also result from reduced inventories and selection.
President Trump argues that foreign countries pay the cost of tariffs.
What is a retaliatory tariff?
A retaliatory tariff is a tax imposed by one country in response to tariffs levied by another country. This type of tariff is part of trade disputes and is meant to exert economic pressure by targeting goods from the other nation, often focusing on politically or economically significant industries.
Chyrstia Freeland, Canada’s lead USMCA negotiator and a potential replacement of Justin Trudeau as party leader and prime minister, in a column in the Toronto Star wrote, “If President Trump imposes 25 per cent tariffs, our counterpunch must be dollar-for-dollar — and it must be precisely and painfully targeted. Florida orange growers, Michigan dishwasher manufacturers and Wisconsin dairy farmers: brace yourselves.”
The threat of tit-for-tat tariffs has heightened concern among U.S. manufacturers and growers that their products will be less competitive in foreign markets and will lead to domestic job losses.
Do tariffs lead to higher consumer prices?
Tariffs generally lead to higher consumer prices because the additional cost imposed on imports is passed down the supply chain.
- Imported items become more expensive due to the tariff.
- Domestic producers may increase prices if competition from imports diminishes. The extent of price increases depends on how easily consumers can switch to alternatives.
Wouldn’t new tariffs by the U.S. on goods from Mexico and Canada violate USMCA?
If the Trump administration increases any tariffs on USMCA partners, except due to national security concerns, it will violate the terms of the agreement under Article 2.4.
What are the most common items imported by the U.S. from Mexico?
- Automobiles and automotive parts
- Electronics and machinery (e.g., TVs, refrigerators)
- Agricultural products. For example, tomatoes, berries, and more fresh produce is imported through Arizona ports of entry, especially the Mariposa Port of Entry in Nogales, ensuring fresh produce is available at a competitive price in grocery store produce sections even in the wintertime.
- Medical devices and pharmaceuticals
- Oil and fuel products
What are the most common items imported by the U.S. from Canada?
- Crude oil and refined petroleum products
- Vehicles and automotive parts
- Lumber and wood products
- Aluminum and steel
- Agricultural goods (e.g., wheat, pork)
The business community view
Arizona Chamber of Commerce & Industry President and CEO Danny Seiden: “We are confident that President Trump will negotiate smart trade agreements with our largest trading partners and that he’ll stick to his goal to lower prices for American consumers.”
National Association of Manufacturers President and CEO Jay Timmons: “The United States, Canada and Mexico—because of the USMCA that was negotiated and implemented a few years ago—has the opportunity to take on together some actions to thwart problematic, market-distorting practices that are coming out of other countries, specifically China.” U.S. Chamber of Commerce President and CEO Suzanne Clark told Axios: “They are, in fact, a tax — they are paid by consumers and manufacturers and they would draw retaliation that could hurt our farmers.”