What are tariffs and why is Trump imposing them on Canada, Mexico and China? | Donald Trump

There are still more than 50 days until Donald Trump takes office, but he has already laid the groundwork for a trade war that could shake the global economy.

Trump announced Monday that he would sign an executive order imposing 25% tariffs on all imports from Canada and Mexico, as well as an additional 10% tariff on imports from China, in alleged retaliation against drugs and migrants crossing US borders.

Although the president-elect promised to impose universal tariffs during the election campaign on all products imported into the United States from abroad, these specifically target the Americas' three largest trading partners. Trump said he would sign the executive order on Jan. 20, his first day in office.

Here's what you need to know about the tariffs and how Trump plans to implement them.

What is a tariff?

A tariff is a tax on imports or foreign products brought into the United States.

Who pays the rates?

This is a question many Americans asked themselves after the election. Trump said foreign countries pay the tariffs, but those tariffs are actually paid by American companies importing goods from abroad.

So, if a U.S. automaker imports a part from Mexico, it will have to pay a customs duty on the part once it arrives in the country.

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. A tariff on the three countries is essentially a tax on these imports.

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 last year announced plans to build a factory in the country, although it has since halted the project as Elon Musk supported the Trump campaign). China is a major exporter of electronic products, such as phones and laptops.

Does Trump need congressional approval to pass tariffs?

Republicans have majorities in the House and Senate, meaning Trump has a lot of power in Congress to pass laws.

But the president also has the power to enact tariffs without congressional approval when it concerns national security, the protection of American industries, or, in a national emergency, for very general reasons that will make difficult to take legal action against customs tariffs.

Why is Trump imposing tariffs?

The United States imports more goods than it exports, accounting for its trade deficit. Not all economists agree that trade deficits are bad, but Trump has denounced them for years and tariffs are his favorite tool for dealing with them.

Tariffs became a major issue in 2018, during Trump's first term, when he imposed tariffs on some products from China and on metal imports. He also threatened to impose tariffs on imports from Mexico, in retaliation for the large number of migrants crossing the border at that time. Trump ultimately renounced the tariffs in 2020.

In other words, this is all a bit of déjà vu.

The way tariffs work, in Trump's mind, is that high tariffs will incentivize American companies to move production from overseas to American shores.

All you have to do is build your factory in the United States, and you don't have tariffs, Trump said just weeks before the election.

But breaking out of complex global manufacturing ecosystems is nearly impossible for many companies. It takes years to get a factory up and running, so even if a company theoretically wanted to boost domestic production to avoid tariffs, Trump's term would likely be over by the time it was ready.

Do prices have an impact on consumers?

Consumers will almost certainly feel the impact of rising prices.

Trump campaigned on implementing 10-20% tariffs across the board, with 60% tariffs on imports from China. Economists have calculated that such tariffs could add between $1,900 and $7,600 to household costs, an increase of 1.4 to 5.1 percent in inflation. In effect, companies would simply pass on tariff costs to consumers. Executives at several U.S. companies, including Walmart, Columbia Sportswear and AutoZone, have all said they will ultimately have to raise prices by imposing tariffs.

American consumers seem aware of this dynamic. In a recent Harris/Guardian poll, nearly two-thirds of Americans said they expected prices to rise if Trump implemented broad tariffs.

How will other countries react to US tariffs?

Not nicely. Countries whose exporters face tariffs can impose tariffs on U.S. imports in retaliation.

After Trump imposed tariffs on Chinese imports, China imposed tariffs on US imports, including soybeans and corn. The move ultimately hurt American farmers, who relied on their business with China. Trump, without congressional approval, ended up bailing out farmers who saw their export revenues fall by at least $10 billion after the tariffs. The Council on Foreign Relations, a US think tank, has since calculated that up to 92% of the revenue the US collected from its tariffs on Chinese imports was ultimately spent on payments to farmers.

Since Trump's last tariff announcement, the Chinese embassy has responded ominously by saying: No one will win a trade war. Mexican Economy Minister Marcel Ebrard, for his part, declared before the elections that the country would consider retaliating.

If you impose 25% tariffs on me, I have to respond with tariffs, he said. Structurally, we have the conditions to play in favor of Mexico.

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