Tariffs in 2025: What You Need to Know

Understanding Tariffs and Their Impact in 2025

What Are Tariffs and How Do They Work?

Tariffs are taxes imposed on imported goods, typically calculated as a percentage of the purchase price paid to a foreign seller. In the United States, these taxes are collected at hundreds of ports of entry by Customs and Border Protection agents. The rates vary by product—for example, tariffs on passenger cars are generally 2.5%, while golf shoes face a 6% tariff.

While tariffs can be reduced or eliminated under trade agreements, such as the U.S.-Mexico-Canada Agreement (USMCA), they remain a contentious economic tool. Many economists argue that tariffs are an inefficient way to generate revenue and often do more harm than good to the economy.

Who Really Pays for Tariffs?

A common misconception is that tariffs are paid by foreign countries. In reality, U.S. importers are responsible for paying these taxes, which are then passed on to consumers in the form of higher prices. This makes everyday goods more expensive for American households.

However, tariffs also impact foreign companies by making their products less competitive in the U.S. market. To remain competitive, some foreign manufacturers may lower their prices, sacrificing profits to offset the added costs. Studies have shown that previous tariffs on Chinese goods hurt China’s economy more than the U.S., but still created financial burdens for American consumers.

RELATED STORY | Who Pays the Tariff on Imported Goods?

Trump’s Stance on Tariffs

Donald Trump has long championed tariffs, arguing that they create manufacturing jobs, reduce the federal deficit, and lower food prices. Throughout his presidency, he imposed sweeping tariffs on solar panels, steel, aluminum, and nearly all Chinese imports. Embracing the nickname “Tariff Man,” he has promised even steeper tariffs in a potential second term.

The U.S. has shifted away from its post-World War II support for free trade, in response to widespread job losses in manufacturing and China’s growing economic influence. Tariffs are a key part of Trump’s plan to restore domestic industry.

The Purpose of Tariffs

Tariffs serve multiple purposes, including:

• Protecting domestic industries by making foreign goods more expensive.
• Punishing countries accused of unfair trade practices, such as subsidizing exports or dumping goods at artificially low prices.
• Generating government revenue—though in modern times, tariffs account for a small fraction of federal income compared to income and payroll taxes.
• Leveraging geopolitical influence—Trump previously used tariff threats to pressure Mexico into enforcing stricter border controls on Central American migrants.

The Economic Downsides of Tariffs

Most economists warn that tariffs often backfire by increasing costs for businesses and consumers while provoking retaliatory measures from other nations. For example, after Trump imposed tariffs on steel and aluminum, the European Union responded by taxing iconic American goods like bourbon and Harley-Davidson motorcycles. Similarly, China hit back with tariffs on U.S. soybeans and pork, targeting American farmers who largely supported Trump.

A joint study by economists from MIT, Harvard, and the World Bank found that Trump’s tariffs did not significantly boost U.S. employment in manufacturing sectors. Instead, retaliatory tariffs led to job losses, particularly in agriculture, despite billions of dollars in government aid meant to offset the damage. The steel industry, a key focus of Trump’s trade policies, saw little job growth despite tariff protections.

Tariffs: A Political Win?

While tariffs may not have delivered the promised economic revival, they have been politically effective. Trump’s strong tariff stance has bolstered his popularity in manufacturing-heavy regions like the Midwest and the South.

As the U.S. approaches another potential trade war, the debate over tariffs continues. Are they a necessary tool to counter economic threats from China and other global competitors, or are they an outdated strategy that ultimately harms American consumers and businesses? The answer may shape the economic landscape of 2025 and beyond.