President-elect Donald J. Trump has professed a belief in the power of tariffs for decades. Now, as he prepares to take office, they are a central part of his economic plan.
Mr. Trump argues that steep tariffs on foreign goods will help benefit U.S. manufacturing and create jobs. His proposals would raise tariffs to a level not seen in generations. Many economists have warned of potentially harmful consequences from such a move, including higher costs for American households and businesses, and globally destabilizing trade wars.
Here are five crucial things to know about Mr. Trump’s sweeping trade plans.
Mr. Trump has floated several hefty tariff plans.
While campaigning for the White House, Mr. Trump offered up a running list of tariffs. He talked about a “universal” tariff of 10 to 20 percent on most foreign products. He has proposed tariffs of 60 percent or more on Chinese goods. And he has suggested removing permanent normal trading relations with China, which would result in an immediate increase in tariffs on Chinese imports.
Mr. Trump has also promoted the idea of a “reciprocal” tariff, in which the United States would match the tariff rates that other countries put on American goods. He has suggested using tariff revenue to replace income taxes. And he has threatened tariffs of 100, 200 or even 1,000 percent on Mexico, saying the country should do more to stop flows of migrants and shipments of Chinese cars.
The Biden administration has also raised tariffs on goods from China, but Mr. Trump’s plans are much larger — affecting trillions of dollars of products, rather than tens of billions.
Mr. Trump says foreign companies pay the tariffs. That’s usually wrong.
A tariff is a tax that is put on a product when it crosses a border. For instance, a company that brings its product into the United States — the importer — actually pays the tariff to the U.S. government.
The more important question, though, is who bears the ultimate cost. A company may try to pass the cost on to its customers by raising its prices. It may eat the cost of the tariff itself, cutting into its profit margins. Or, it could try to force foreign suppliers to bear the burden by negotiating to pay less for their products.
Which of these happens depends on the particular company. But in the case of the hefty tariffs that Mr. Trump put on China during his first term, economic studies found that most of those costs were passed on to American consumers.
Economists believe this could happen again. One study by the Peterson Institute for International Economics, for example, calculated that Mr. Trump’s current tariff plans would increase costs for a typical American household by $2,600 a year.
Even among manufacturers, tariffs create winners and losers.
Mr. Trump’s plan is aimed at helping U.S. manufacturers — but it could hurt some, too.
Many rely on foreign parts and materials. Tariffs on those products would raise costs for the American factories that use them, offsetting other gains for the manufacturing sector.
Tariffs can also help one industry at the expense of others. For example, one government study found that Mr. Trump’s tariffs on steel and aluminum increased U.S. production of those metals by $2.2 billion in 2021. But American factories that used those metals to make cars, food packaging and appliances had to pay higher costs, and they saw a $3.5 billion reduction in output that same year.
Mr. Trump has significant power to impose tariffs unilaterally.
The Constitution technically gives Congress the power to regulate foreign trade, but lawmakers have in turn given the president plenty of his own trade authority.
Laws passed in previous decades have given the president wide scope to impose tariffs to protect U.S. national security, defend industries hurt by foreign trade practices or take action in response to an “international emergency,” which can be defined as pretty much anything.
The one exception may be Mr. Trump’s idea to impose a universal tariff on all foreign products, which legal experts say could face challenges in court. But those challenges could take time to unfold and may ultimately prove unsuccessful.
If he follows through on his plans, trade wars are likely on the way.
In Mr. Trump’s first term, his tariffs incited multiple international trade spats. The European Union, China, Canada and other governments put tariffs on American soybeans, whiskey, orange juice and motorcycles, causing some U.S. exports to plummet.
These scenarios seem likely to play out again on a bigger scale. Many foreign governments have already been drawing up lists of American products that they could hit in response.
Some Wall Street traders appear to be assuming that Mr. Trump’s tariff threats are partly bluster, and will not fully translate into policy.
But Edward Alden, a trade expert at the Council on Foreign Relations, said that this time around, Mr. Trump had displayed a “much more fundamental embrace of tariffs as a good thing.”
Mr. Alden pointed to a line in Mr. Trump’s acceptance speech early Wednesday morning, in which he said promises made would be “promises kept.”
“There’s no question he means it,” Mr. Alden said of tariffs. “That’s very much at the top of the promise list.”
