For four days last week, Donald Trump was busy in Europe. Between a state visit to Britain, a memorial marking the 75th anniversary of D-Day, and a jaunt at a luxury golf course in Ireland, Trump, it seemed, was consumed by his trip. But in between all the fanfare, he managed to make some noise back home: he threatened to levy tariffs against Mexico to force our southern neighbor’s hand on what he considers an out-of-control border problem. He also casually threatened to raise already-existing tariffs on China by $300 billion while talking to reporters.
The move enraged the Chinese government and shocked Washington, but perhaps it shouldn’t have. After all, Trump’s love of tariffs as a political and economic tool is well-documented. Only a few months ago, Trump proudly called himself a Tariff Man in a tweet where he also promised to “MAKE AMERICA RICH AGAIN.”
As far back as his 2016 presidential campaign, Trump told rally attendees that he would use tariffs to boost the American economy. According to Reuters, in June 2016, Trump “threatened to apply tariffs under sections 201 and 301 of U.S. trade legislation” and said that “China’s entrance into the World Trade Organization enabled the ‘greatest jobs theft in history.'”
So it’s not a surprise that tariffs are what ABC News describes as “one of Trump’s favorite policy tools.” Still, the president’s reliance on this blunt policy tool has many on both sides of the aisle worried about both the short- and long-term impacts on the American economy. It has also raised questions about what the hell tariffs are, how they work, and who is really paying for Trump’s tariffs.
We break it down.
What is a tariff?
Put simply: a tariff is a tax put on imported goods. In a vacuum, a tariff would ostensibly create revenue and protect a country’s industries from being undersold by outside, competing industries. For example, country A has a booming steel industry, and citizens from country A are happy to buy these products. But thanks to a trade agreement, country B is now allowed to sell their steel in country A. Country B’s steel is 20 percent cheaper, so consumers obviously start buying B steel. This starts to hurt country A’s steel industry, so country A enacts a 25 percent tariff, making country B’s steel 5 percent more expensive for consumers than country A’s steel, effectively protecting country A’s steel industry.
But things are never as simple as they seem. According to Investopedia, “By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive.”