Since re-entering office, President Trump has issued a flurry of tariffs in an effort to rewire the global economy.
At 12:01 a.m. Eastern time on Wednesday, his most aggressive moves yet took effect, imposing double-digit rates on dozens of countries. In China’s case, tariffs are piling on previous tariffs, and with new ones announced this week, import taxes on its goods will be at least 104 percent.
The growing trade tensions have taken a stark toll on financial markets, with the S&P 500 down more than 12 percent since Mr. Trump unveiled his tariff plan on April 2. And economists are increasingly warning that the United States could slip into recession if tariffs continue to escalate. So why is the White House continuing to double down?
What are tariffs, and who pays for them?
A tariff is a government surcharge on products imported from other countries.
Tariffs are paid by the companies that import the goods. For example, if Walmart imports a $10 shoe from Vietnam — which faces a 46 percent tariff — Walmart will owe $4.60 in tariffs to the U.S. government.
What happens next?
Walmart could try to force the cost onto the Vietnamese shoe manufacturer, by telling it Walmart will pay less for the product.
Walmart could cut into its own profit margins and absorb the cost of the tariff.
Walmart could raise the price of the shoes at its stores.
Or, some combination of the above.
Economists found that, when Mr. Trump put tariffs on China in his first term, most of that cost was passed on to consumers. But economic studies found that his tariffs on foreign steel were a bit different; only about half of those costs were passed on to customers.
Why is Trump imposing tariffs?
Mr. Trump’s point of view appears to be that any trade deficit — the value of goods the U.S. imports from a country, minus what the U.S. sends it as exports — is bad. He has long described bilateral trade deficits as examples of America being “ripped off” or “subsidizing” other countries.
America’s Trade Deficits and Surpluses With Other Countries
The president and his advisers say their goal is to make the tariffs so painful that they force companies to make their products in the United States. They argue that this will create more American jobs and push up wages.
But Mr. Trump has also described tariffs as an all-purpose tool, forcing Canada, Mexico and China to crack down on the flow of drugs and migrants into the United States. The president also maintains that tariffs will rake in huge sums of revenue that the government can use to pay for tax cuts.
Economists say that tariffs cannot simultaneously achieve all of the goals that Mr. Trump has expressed. In fact, many of his aims contradict one another. The same tariffs that are supposed to boost U.S. manufacturing are also making life painful for U.S. manufacturers, by disrupting their supply chains and raising the cost of their raw materials.
“All of these tariffs are internally inconsistent with each other,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics, a Washington think tank. “So what is the real priority? Because you can’t have all those things happen at once.”
How were the new tariffs calculated?
The White House put out a complicated-looking formula for tariffs that target many countries with new high rates, but one explanation appears to be straightforward: the gap between what America exports to a country and what it imports.
The White House formula for calculating its tariffs
In the White House tariff calculations, countries that send the United States more goods than they buy were deemed to have “unbalanced” trade and will face higher tariffs.
This formula doesn’t account for the fact that some countries are better at making certain products, a concept known as comparative advantage. And economists say it is nonsensical to force countries to exactly equalize their exports and imports to and from the United States.
How have U.S. trading partners responded?
The Trump administration has signaled that it was ready to negotiate deals, saying that 70 governments had approached the United States to try to roll the levies back. Other countries are fighting back.
The 20 largest exporters to the U.S.
China is imposing 34 percent tariffs on all U.S. products, matching earlier levies from Mr. Trump. It also barred 11 American companies from doing business in China, and customs authorities said that they would halt chicken imports from five of America’s biggest agricultural exporters.
The European Union is responding to President Trump’s sweeping trade war with a handshake and a punch: It is promising the administration potential wins while also preparing its own retaliatory tariffs on American products starting next week. It has announced earlier retaliatory measures on a wide variety of U.S. goods, including whiskey, motorcycles and women’s clothing. E.U. officials are also considering trade barriers on services, using a new trade weapon that was developed in 2021 to target Big Tech and Wall Street.
Canada has vowed to defend its workers, businesses and economy from new tariffs and threats from Mr. Trump. Prime Minister Mark Carney recently said it was clear that the United States was “no longer a reliable partner.” In March, after U.S. steel and aluminum tariffs took effect, the Canadian government said that it would impose new retaliatory tariffs on $20 billion worth of U.S. imports, on top of the 25 percent tariffs announced previously.
Mexico made a major effort to fend off tariffs, sending more than two dozen accused cartel leaders to the United States to face criminal charges and dispatching troops to fentanyl laboratories and the U.S. border.
Britain tried to cultivate closer ties to the U.S. but still got swept into Mr. Trump’s tariffs.
South Korea convened an emergency task force and vowed to “pour all government resources to overcome a trade crisis.”
Vietnam offered to lower its tariff rate on American exports to zero, in exchange for a similar move by the United States, though it’s unclear if the two countries will reach a deal.
Australia said it would not respond with retaliatory tariffs, as Anthony Albanese, the prime minister, vowed not to “join a race to the bottom that leads to higher prices and slower growth.”
What is happening with stock markets?
The benchmark S&P 500 index is on the verge of a bear market, defined as a drop of 20 percent or more from its last high. As of Tuesday, the index closed 18.9 percent below its mid-February record, having tumbled more than 12 percent just in the days since Mr. Trump announced his new tariffs.
A line chart showing the stock markets of 6 countries since Trump’s inauguration.
Economic growth worries have been reflected in other markets, notably in the price of oil. Brent crude, the international benchmark, continued to slide on Tuesday, trading at around $63 a barrel; it was above $80 a barrel three months ago.
How could tariffs affect consumer prices?
Mr. Trump’s tariffs target countries that supply a wide variety of goods to the United States. For American families, the very likely result is higher prices at grocery stores, car dealerships, electronics retailers and clothing outlets.
Mr. Trump’s 25 percent tariffs on imported vehicles are already sending tremors through the auto industry, prompting companies to stop shipping cars to the United States, shut down factories in Canada and Mexico and lay off workers in Michigan and other states.
Nearly half of all vehicles sold in the United States are imported, as well as nearly 60 percent of the parts used in vehicles assembled in the United States.
Since the North American free trade zone was created in 1994, American and foreign-owned automakers have built supply chains that cross the borders of the United States, Canada and Mexico.
What’s an Import?
National borders blur in vehicle production, with parts often sourced from around the world.
For example, the 2024 Chevrolet Blazer, a popular sport utility vehicle made by General Motors, is assembled at a plant in Mexico using engines and transmissions that are produced in the United States.
Stellantis idled factories in Canada and Mexico that make Chrysler and Jeep vehicles and laid off 900 U.S. workers who supplied those factories with engines and other parts.
Audi, the luxury division of Volkswagen, and Jaguar Land Rover, based in Britain, both paused their exports to the United States.
The Yale Budget Lab estimated that Mr. Trump’s new auto tariffs, which took effect on Thursday, would raise vehicle prices 13.5 percent on average, the equivalent of an additional $6,400 for the price of an average new 2024 car. In total, American households would pay $500 to $600 more, on average, as a result of the tariffs, the group estimated.
What happens next?
Jerome H. Powell, the chair of the Federal Reserve, recently warned that President Trump’s tariffs risk stoking inflation and slowing down growth. The latest monthly reading on consumer prices is released on Thursday, though the full effects of the tariffs have yet to trickle into the economy broadly.
Many analysts have downgraded their forecasts for economic growth, saying that tariffs would push up prices for consumers and costs for businesses, slowing demand and economic activity. Some banks have said the chances that the United States enters a recession this year have dramatically increased.
What is the history of tariffs in the U.S.?
1789: At its founding, the United States relied heavily on tariffs to finance the federal government and protect domestic manufacturers, as proposed by Alexander Hamilton, the first Treasury secretary.
1828: The federal government passed tariffs averaging 38 percent to shield the country’s manufacturing sector from foreign competitors. These were labeled the “Tariff of Abominations” by Southern states, whose economies relied on exporting raw materials and importing manufactured goods, leading to a constitutional standoff.
1930: The Smoot-Hawley Tariff Act of 1930 was enacted after the stock market crash of 1929, in an attempt to protect U.S. businesses. Instead, as described in “Ferris Bueller’s Day Off,” the tariffs “did not work, and the United States sank deeper into the Great Depression.”
1934: Franklin D. Roosevelt signed the Reciprocal Trade Agreements Act, which gave the president the authority to negotiate bilateral trade agreements. This set the stage for more than 90 years of liberal free trade policies.
Reporting was contributed by Mark Landler, Eshe Nelson, Alexandra Stevenson, Andrew Duehren, June Kim, Jack Ewing, Karl Russell, Colby Smith, Ian Austen, Vjosa Isai, Annie Correal, Keith Bradsher and Alan Rappeport.
