WASHINGTON — After weeks of anticipation, President Donald Trump declared a 10% baseline tax on imports from all countries and higher tariff rates on nations with significant trade surpluses. This move was seen as a fulfillment of his campaign promise to address the imbalance in tariffs between the U.S. and other countries, which he argued unfairly penalizes U.S. products.
Trump’s new tariffs are aimed at foreign entities that export more to the U.S. than they import. However, economists have expressed concerns about tariffs, which are effectively taxes on importers and often passed on to consumers. It is possible though that imposing reciprocal tariffs could prompt other countries to lower their import taxes.
A number of questions have arisen regarding reciprocal tariffs. For instance, does revenue collected from U.S.-collected tariffs go into the General Revenue Fund? The answer is yes: tariffs collected from imported goods go to the U.S. Treasury to help fund government expenses, with Congress having authority over the allocation of these funds.
Trump, with the support of Republican lawmakers, plans to use the increased revenue from tariffs to finance tax cuts that could primarily benefit the wealthy. Critics argue that extending the 2017 tax cuts would disproportionately reduce federal revenue.
Regarding the impact of the tariff policy on prices, the response will largely depend on how businesses react; consumer prices may rise within a few months. There is concern that, given the recent inflationary period, consumers may be more tolerant of price increases now than they were before the pandemic.
Despite the potential effect of tariffs, there are also indications that consumers, facing rising living costs, are resistant to further price hikes and may reduce spending.
Congress constitutionally has the power to set tariffs, but has delegated some of this authority to the President through various laws. Traditionally, tariffs have been implemented after an assessment of their impact on national security or specific industries. In his second term, however, Trump has invoked emergency powers to implement tariffs more unilaterally.
There is a difference in the tariffs charged by the U.S. compared to those of other countries. On average, U.S. tariffs are lower than those applied by other nations, and other countries are more protective of their agricultural sectors with higher tariffs.
Despite claiming much higher tariffs imposed on the U.S. by other countries, previous administrations have negotiated these rates through international trade agreements. The Trump administration’s own estimates suggest that countries like the European Union and China impose far higher tariffs than official figures.
Source: https://time.com/7274160/trump-reciprocal-tariffs-questions-answered-explainer/
