Confusion over tariffs has largely shaped the first months of President Donald Trump’s second term. He has repeatedly announced 25 percent tariffs on imports from U.S. neighbors and allies Canada and Mexico, then temporarily delayed and reduced them. Trump has also targeted China, and here he has been less lenient: in February he implemented a 10 percent tariff, and this month he doubled that. He also raised the possibility that steep tariffs on most imports globally will be implemented in April. The results have been uncertainty in the stock market and widespread confusion about which tariffs are actually in effect at any given time.
But there is also a deeper confusion about the policy: What are tariffs, really, and what do experts know about their impacts? It turns out that the verdict on effects is relatively clear: “Economists know that they are very inefficient; we know that they are very bad for consumers,” says Luisa Blanco, an economist at Pepperdine University.
Many countries, including the U.S., have historically imposed tariffs as high as 20 percent on imports as a tactic to protect local producers, but this has generally fallen out of favor as free trade has become the global norm. The U.S., in line with peer nations such as Japan and European Union members, has maintained some small tariffs on specific goods, such as passenger cars, that nations under free-trade agreements are exempt from.
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And during his first term in the White House from 2017 until 2021, Trump implemented tariffs on solar panels, which are primarily produced in China, and on select Chinese industries, including medical and aerospace production. His successor from 2021 until January 2025, then president Joe Biden, kept most of those policies in place and even added tariffs on other China-made products, including electric vehicles and medical equipment. But Trump’s favored approach involves using far higher rates—apparently less of an economic tactic than a foreign policy one.
Scientific American spoke with Blanco about the science behind tariffs and the types of ripple effects these taxes can have on people’s daily lives.
How do tariffs work?
Conceptually, here’s how economists think about trade: In an economically ideal world, every nation produces only the goods it can make most efficiently. The nation consumes what it needs of these products, then sells any surplus to other nations that don’t produce these items as efficiently. The proceeds from those sales then fund imports of goods that the nation can’t produce as efficiently.
It’s a mutually beneficial scenario that plays to each nation’s strengths. “Both countries actually benefit by having access to more products, more goods, than if they just tried to produce everything themselves,” Blanco says. This is the kind of free-trade situation fostered by pacts such as the United States–Mexico-Canada Agreement, which in July 2020 replaced the North America Free Trade Agreement, or NAFTA.
A simple way to think about an economic market is that producers and importers are willing to sell varying amounts of a good for varying prices, and customers are willing to buy that good for a range of prices. In a free market, buyers and sellers continuously perform a sort of indirect “negotiation” that determines the retail value of a good.
Some imported goods can cost more than domestically produced goods, but only if customers value them enough to pay more for them. (Consider a product such as Italian olive oil.) Other imported goods, such as T-shirts imported to the U.S. from China, cost less than domestic goods because the exporting company can produce them for far less than the cost of transporting those goods.
A tariff interferes with this free-market scenario. It’s basically a tax, but rather than a tax on a particular type of product (such as alcohol or gasoline), it’s a tax on imports—either from one country or across the board.
What is the impact of tariffs?
Tariffs provide income to the government that applies them, although even after existing tariffs levied by Trump and Biden, the federal government last year collected about 30 times more revenue via individual income taxes than through tariffs.
Traditionally, tariffs are meant to keep production at home. They artificially raise the price of imported products, allowing domestic manufacturers to charge higher prices without losing as many customers as they would if they raised prices without tariffs in place. That makes it easier for local producers to compete on goods that the U.S. does have a competitive advantage in producing. Even sellers not subject to a tariff can raise prices. For instance, after then president Barack Obama implemented a three-year tariff on China-made tires in 2009, tires produced domestically and imported from countries other than China became significantly more expensive as well, according to research published in 2022 in Applied Economics.
And it is customers who ultimately bear the biggest burden of tariffs because—to simplify—they can either pay the naturally higher price of the U.S.-made goods or the artificially higher price of the imported alternative; either way, the customer pays more. This result weighs on the economy, Blanco says. “Tariffs actually create a deadweight loss” in which the consumer loses more than the producer gains, she explains.
Of course, the real marketplace is much more complicated and interconnected than what these explanations can encompass. For example, many goods have components that cross multiple borders multiple times. A product may be manufactured in the U.S. but rely on components sourced in a second country and processed in a third—and these international journeys become even pricier when tariffs are added to the mix. There are “definitely going to be huge distortions in the supply chain,” Blanco says.
The consequences add up. One analysis suggests that a 10 percent tariff on all international products and a 60 percent tariff on Chinese products could cut nearly $600 billion over four years from the U.S. gross domestic product, a common measurement of economic output, falling hardest in the earliest days.
In addition, targeted nations, driven to protectionism by a trade partner’s initial move, often levy their own retaliatory tariffs. Sometimes tariffs escalate repeatedly into a trade war, like the one that has simmered between the U.S. and China since 2018. A retaliatory tariff against the U.S. can magnify the impacts of higher prices on U.S. consumers, but it can also hurt export opportunities for the nation despite being meant to protect its manufacturers.
Effects can ripple through an entire economy. For example, one large-scale study that looked at tariffs implemented across 50 years in 151 countries from 1963 to 2014 found that the policies caused small increases in unemployment and inequality.
Blanco particularly worries about people with lower incomes, who have the least padding in their household budgets when costs rise. “These tariffs are going to be regressive taxes,” she says. “At the end of the day, we all have to buy groceries.”