On Wednesday, President Trump introduced what might become one of the most profound shifts in economic policy in recent decades. He has decided to replace the traditional U.S. import tax system with a new tariff strategy designed by his team.
Trump claims that these tariffs will put an end to years of what he describes as global economic injustice towards the United States, and he’ll see manufacturing and employment making a big comeback on American soil.
“You’ll see markets taking off and the entire country thriving,” Trump remarked on Thursday, even as global financial markets experienced significant downturns. He added that other nations “have been taking advantage of us for a long, long time.”
However, experts are painting a different picture. Most economists anticipate that these wide-ranging tariffs, coupled with potential retaliatory actions, will likely impede U.S. economic progress, raise consumer expenses, and challenge businesses that depend on international networks for their supplies.
This policy shift by the president is both significant and intricate.
### What exactly did the president introduce?
President Trump revealed two substantial tariff strategies that will affect numerous countries worldwide. The first involves a “base line” tariff of 10% applied across a wide range of U.S. imports, excluding those from Canada and Mexico.
The second approach involves a “reciprocal” tariff targeting 57 nations that Trump believes impose high tariffs and engage in other harmful economic behaviors that disadvantage U.S. exporters. He refers to this as a reciprocal tariff since it supposedly mirrors how these countries treat the U.S.
Yet, these tariffs aren’t directly based on other nations’ tariffs or trade barriers to the U.S. Instead, they’re determined by examining the U.S. trade deficit, which highlights the difference between what the United States sells to and buys from other countries.
These reciprocal tariffs vary from 1% to 40% and will be added on top of the 10% base line tariff.
Starting Saturday, the 10% tariff comes into play, with the reciprocal tariffs beginning next Wednesday.
### Which nations are most affected by these tariffs?
Major economic partners of the U.S., such as China, Japan, Germany, India, South Korea, Taiwan, and Vietnam, bear the brunt of these tariffs.
Interestingly, Canada and Mexico were left out, having been hit with a 25% tariff on several exports last month. However, certain products escape this tariff if they qualify for the 2020 United States-Mexico-Canada Agreement. Additionally, considering tariffs on cars, steel, and aluminum already affecting these nations, no further tariffs seem necessary for America’s closest neighbors.
Still, other allies will face notable tariffs. European imports will endure a 20% tariff, Japanese goods 24%, and South Korean products 26%.
Given the tariff calculations, Asian nations with significant exports to the U.S. but limited imports will encounter steeper rates.
For instance, Chinese goods will be subjected to an additional 34% tariff, atop a recent 20% tariff plus earlier levies, cumulatively resulting in a total tariff of 79% for some items from China.
Vietnam, having attracted businesses seeking refuge from earlier China tariffs, now faces a 46% tariff, while Cambodia’s exports will see a 49% charge.
Russia, North Korea, Cuba, and Belarus escape these tariffs due to existing sanctions, though imports from Russia totaled $3 billion last year—relatively minor compared to bigger players but substantial next to smaller countries like Lesotho and the Falkland Islands, both facing Trump’s tariffs.
### What’s the ultimate objective here?
Trump and his team hope that the burden of these tariffs will encourage companies to manufacture domestically, thereby boosting American jobs and salaries.
“If you’re aiming for zero tariffs,” Trump suggested outside the White House, “build your products here in the U.S.”
However, a significant question remains: does the president see these tariffs as a bargaining chip, and would he consider rescinding them for favorable changes from other countries?
The administration’s responses have been mixed. While it seems the 10% base line tariff will remain, there’s some indication that should countries adjust their unfair trade practices or reduce the U.S. trade deficit, these reciprocal tariffs might be relaxed.
Commerce Secretary Howard Lutnick sharpens the point, likening foreign trade barriers to “monsters that need defeating.”
“Our teams are reaching out to major trading partners today,” Lutnick stated on Bloomberg Television. “It’s their moment to reflect deeply on their unfair treatment of us and to make amends.”
### How were the tariff numbers determined?
According to Trump on Wednesday, a nation’s tariff rate would factor in “combined tariffs, non-monetary barriers, and other tricks.” Yet, the reality was simpler: they looked at the trade imbalance, which reflects the difference between U.S. exports and imports with a country.
Although the methodology seemed complex, it boiled down to a straightforward concept: nations selling more goods to the U.S. than they purchase face higher tariffs due to “unbalanced” trade.
This calculation steps away from considering comparative advantage—the idea that countries trade based on who produces what most efficiently. Instead, the current administration seems to equate any trade deficit with negativity, and tariffs are viewed as a corrective tool until deficits disappear.
### What’s the tariff implementation process?
As these tariffs roll out in the coming week, importers will immediately encounter increased costs when bringing goods into the U.S., and these are typically American businesses.
For instance, if Walmart imports a $10 product from Vietnam under a 46% tariff, they’d need to pay an extra $4.60 in tariffs to the U.S. government.
What unfolds next is uncertain. Walmart could attempt to shift this cost onto Vietnamese suppliers, absorb it themselves, or raise prices in their stores to compensate.
From previous experiences, notably when Trump first imposed tariffs on China, it was largely the consumers who felt the burden. However, with steel tariffs, only about half of that cost trickled down to consumers.
Experts predict various outcomes, but with Trump’s sweeping tariffs, American households might incur significant additional expenses yearly. The Yale Budget Lab predicts an average increase of $2,100 per household annually, with lower-income families shouldering more in proportion to their earnings.
Substantial tariffs imposed on multiple Asian countries are expected to push up prices for consumer goods, like apparel and gadgets.
While the government stands to benefit from increased tariff revenue, the Trump administration promises to redirect this surplus towards tax reductions. Last year, the value of tariffs for all goods imported into the U.S. was $78 billion, but new tariffs could push this figure beyond $1 trillion, as analyzed by Washington-based Trade Partnership Worldwide.
### What’s the economic ripple effect?
Trump’s tariff announcement has already sent shockwaves through global stock markets, signifying a potential adverse impact on publicly traded businesses.
The path other countries will take in response remains uncertain. Yet, should they retaliate with tariffs on U.S. goods, American exporters might suffer, heralding potential trade wars.
Analysts are swiftly adjusting their economic growth projections, suggesting that tariffs will escalate consumer prices and business costs, dragging down demand and economic momentum.
Nancy Lazar, chief global economist at Piper Sandler, predicts the U.S. economy might shrink by 1% in the second quarter, contrary to her previous flat-growth forecast. “It’s a direct hit to the economy,” she commented.
Meanwhile, economists at Fitch Ratings warn that these tariffs considerably heighten the risk of a U.S. recession. They argue that increased consumer prices could erode real wages, dampening spending power.
Additionally, corporate earnings are likely to drop, and alongside policy uncertainties, business investments could slump. According to Fitch, the anticipated protection U.S. firms may gain from reduced foreign competition might be dwarfed by these broader economic impacts.
Lazaro Gamio and Colby Smith provided reporting for this piece.
