Since re-entering office, President Trump has aggressively pursued a policy of introducing tariffs in an effort to transform the global economy. On Wednesday, he unveiled his most aggressive measures to date, sparing few countries from the impact. A 10 percent tariff on worldwide goods entered into effect on Saturday, with significantly higher rates to be imposed on numerous countries in the coming week. This move has caused financial markets to plunge, foreign leaders to condemn the actions, and concerns have been raised about inflation and the slowing of economic growth.
What are tariffs, and who pays for them?
A tariff is an additional charge imposed by a government on imported goods. For example, if Walmart imports a $10 shoe from Vietnam, which faces a 46 percent tariff, Walmart will have to pay $4.60 in tariffs to the U.S. government. Companies that import goods are responsible for paying these tariffs. The impact of tariffs can lead to Walmart either increasing the cost of the shoe to consumers, absorbing the cost out of its profit margins, or negotiating with the supplier to reduce the cost of the product.
The aim behind Trump’s tariffs is to pressure companies into manufacturing their products within the United States, potentially creating more American jobs and driving up wages. However, critics argue that the tariffs conflict with each other, hurting U.S. manufacturers by disrupting supply chains and increasing the cost of raw materials.
Tariffs have traditionally been calculated based on the trade deficit between countries, which Trump views as an indicator of unfair trade practices. This approach, however, fails to consider the concept of comparative advantage, where countries specialize in manufacturing certain products more efficiently. They argue that attempting to balance trade deficits by tariffs would unnecessarily raise prices and stifle economic growth.
Financial markets reacted sharply to the announcement, with the S&P 500 index plummeting 6 percent on Friday, representing the most significant weekly decline since the early days of the COVID-19 pandemic in March 2020. The global response to these tariffs has been one of opposition, with trading partners like China, the European Union, Canada, and others threatening retaliatory measures.
While discussing the impact of tariffs on consumer prices, it is noted that as tariffs target countries that supply a wide variety of goods to the U.S., the most likely outcome for American families is higher prices across various consumer markets.
Understanding the history of U.S. tariffs provides context to the current trade tensions. The use of tariffs to protect domestic industries and raise revenue dates back to the country’s founding. Key pieces of legislation include the 1789 tariff proposed by Alexander Hamilton and the ill-fated Smoot-Hawley Tariff Act of 1930, which deepened the Great Depression. The
Source: https://www.nytimes.com/live/2025/04/07/business/trump-tariffs-stock-market
