A drone view exhibits transport containers from China, on the China Transport (North America) Holding Firm Ltd. facility on the Port of Los Angeles in Wilmington, California, Feb. 4, 2025.
Mike Blake | Reuters
President Donald Trump has lengthy been a fan of tariffs, and in his first month again within the White Home he wasted no time imposing new — and comparatively excessive — tariffs on imported items from Canada, Mexico and China.
Whereas Trump has suspended the tariffs on Canada and Mexico for at the very least one month whereas these nations negotiate with the US on commerce and border safety, new 10% tariffs on Chinese language imports started this week.
And given Trump’s historical past, it’s probably that he’ll wield the specter of tariffs once more throughout his subsequent 4 years in workplace.
CNBC spoke with commerce professional David Gantz to get solutions to the questions many People might need about tariffs after seeing a flurry of headlines about Trump’s favourite commerce negotiation device previously week.
David A. Gantz, Will Clayton Fellow in Commerce and Worldwide Economics.
Courtesy: Wilson Middle
Gantz is the Will Clayton Fellow in Commerce and Worldwide Economics at Rice College’s Baker Institute for Public Coverage, and beforehand served because the U.S. choose on the Administrative Tribunal of the Group of American States, in addition to a marketing consultant for the World Financial institution.
What’s a tariff?
“It is basically a tax on imported items,” Gantz mentioned. “The tax is decided by … the worth of the products declared by the exporters.”
“For some commodities, it is a value per ton, however on basically all client items it is the worth of the product,” Gantz mentioned.
“Sometimes the worth is what an impartial purchaser would pay to an impartial vendor.”
Items topic to tariffs might be commodities or different uncooked supplies, equivalent to metal; part merchandise, equivalent to vehicle transmissions; and completed merchandise, equivalent to a Mercedes-Benz sedan.
Tariffs are normally a proportion of the worth of the imported good. For a tariff of two.5%, the responsibility paid could be $2.50 for each $100 worth of products.
Who pays the tariff?
“Beneath the regulation, the importer is answerable for paying the tariff,” Gantz mentioned.
A U.S. vehicle firm, for instance, would pay the tariff on a transmission imported from Korea that the corporate will use to assemble an SUV.
“However” — and it is a large however — “the importer below regular circumstances would switch it up the road to the wholesaler, to the distributor, and finally to the buyer,” Gantz famous.
In different phrases, whereas an importer will initially pay the tariff, one other firm and finally the tip person, or client, will foot most or a few of its value.
Gantz used the instance of crude oil drilled in Alberta, Canada, and shipped by way of pipeline to the US, the place it finally ends up being refined into gasoline or diesel gas.
Beneath Trump’s now-suspended tariffs, vitality merchandise imported from Canada could be topic to a ten% levy. If Alberta crude is promoting for $60 a barrel, the extra tariff will likely be $6 per barrel imported.
As a result of revenue margins on gasoline “are very, very small,” Gantz mentioned, “the complete value of the $6 goes to be handed on” to the buyer on the pump of BP stations and elsewhere.
“BP is just not going to soak up any a part of the extra $6 or no matter it’s,” he mentioned.
Along with gasoline, customers are most certainly to see value hikes that absolutely replicate the tariff price on perishable meals objects equivalent to vegatables and fruits, the place revenue margins likewise are low, Gantz mentioned.
However for importers with larger revenue margins, “when you’ve got a comparatively excessive mark-up, equivalent to branded footwear, you could possibly soak up a lot of the extra value” from tariffs with out passing all of it on to the buyer, he mentioned.
Who collects tariffs?
“Tariffs are collected by Customs and Border Safety, a division of the Division of Homeland Safety,” Gantz mentioned.
However “it is paid immediately into an account that immediately goes into the Treasury,” he mentioned.
The Treasury Division, which beforehand had oversight over CPB, is answerable for accumulating income for the U.S. authorities.
Vans drive into United States on the Otay Mesa Port of Entry, on the U.S.-Mexico border on February 1, 2025 in San Diego, California.
Apu Gomes | Getty Photos
How a lot does the U.S. authorities get from tariffs?
Not a lot — regardless of beforehand being very a lot.
In fiscal yr 2024, the U.S. collected simply $77 billion in tariffs, which quantities to about 1.5% of all federal income, in line with the Congressional Analysis Service.
“Over the previous 70 years, tariffs have by no means accounted for way more than 2% of complete federal income,” CRS says.
Why are tariffs used?
When the US grew to become a rustic within the late 18th century, tariffs “had been the principal supply of presidency income, as a result of we didn’t have an earnings tax till 1913,” Gantz mentioned.
“For properly over 100 years they had been the key supply of U.S. authorities revenues,” he mentioned.
Tariffs are “additionally very simple to gather,” Gantz mentioned. “Import tax is collected on the border, and should you do not pay the tax you do not get your good.”
“They had been additionally used over these years to guard new industries … notably in New England.”
Excessive tariffs meant that merchandise imported into the U.S. had a aggressive drawback to merchandise sourced within the U.S.
Staff focus on their job at Steelcon, a structural metal design and fabrication firm, earlier than a marketing campaign cease by Ontario Premier Doug Ford in St. Catharines, Ontario, Canada, January 31, 2025.
Carlos Osorio | Reuters
Protectionist tariffs stay within the U.S., equivalent to within the metal business, the place imported metal is subjected to levies.
Why are they much less widespread at this time?
Tariffs grew to become a much less essential supply of federal income within the U.S. after a federal earnings tax was re-established in 1913, and tariff charges had been sharply lowered.
In 1930, Congress handed the Smoot-Hawley Tariff Act, which raised levies on a broad vary of imports in an effort to guard U.S. companies throughout the onset of the Nice Melancholy. The act led to retaliatory tariffs by different nations and is broadly seen as exacerbating the financial distress of the Melancholy.
“If we elevate our tariffs, different nations elevate their tariffs,” Gantz mentioned.
He famous that after Trump mentioned that he would impose a 25% tariff on imports from Canada, that nation “got here up with a really detailed record of about $150 billion of U.S. imports that they had been going to extend import taxes on,” with a concentrate on good from states whose legislators supported the U.S. tariffs.
China on Tuesday mentioned it is going to impose extra tariffs of 15% on coal and liquefied pure fuel imported from the US, and additional 10% duties on U.S. crude oil, agricultural equipment, and a few vehicles.
However Gantz mentioned that having tariffs comparatively decrease than they had been throughout the nineteenth century can profit U.S. customers, who’re additionally voters.
“If we have now low tariffs on items from China, that in all probability saves households $2,000 or $3,000 per yr on every little thing from tv units to Barbie dolls,” Gantz mentioned.
“And that $2,000 or $3,000 has been essential to low-income employees as a result of they do not have a lot cash,” he mentioned.
What about Trump?
In his latest inaugural handle, Trump lauded former President William McKinley, who served within the White Home from 1897 till he was assassinated in 1901. As a member of the Home of Representatives, McKinley championed the McKinley Tariff of 1890, which sharply raised import levies.
“President McKinley made our nation very wealthy by way of tariffs and thru expertise,” Trump mentioned in his speech.
Gantz mentioned that imposing tariffs given that Trump lately cited — stemming the circulation of migrants and the lethal opioid fentanyl from Mexico, Canada and China — was not a typical rationale for tariffs.
“However they weren’t the one cause,” Gantz mentioned.
“Trump for years has been sad with the commerce deficit we have run with Canada and Mexico,” he mentioned. “And he has additionally talked about the right way to get firms in Canada and Mexico to maneuver to the US.”
Trump additionally sees tariffs as a income that “will make it simpler to lower taxes, totally on rich folks,” Gantz mentioned. “That is the idea.”
“He loves them. He thinks they’re the answer to every little thing.”