Tariffs are taxes imposed on goods imported from other countries. They have been a significant part of international trade for centuries, used by governments to protect domestic industries, raise revenue, and influence trade policies.
In recent years, tariffs have become increasingly important due to their impact on global trade and economies. Here are ten key things you need to know about tariffs in 2025.
1. What are tariffs?
Tariffs are essentially taxes on imported goods. They can be applied in two main ways: as a percentage of the item’s value or as a fixed amount per unit. For example, if a tariff is 25% on a $100 item, the importer must pay an additional $25 to bring that item into the country. These costs are often passed on to consumers through higher prices.
2. Recent tariff actions by US President Trump
In early 2025, President Trump announced significant tariff increases on imports from Canada, Mexico, and China. This included a 25% tariff on most goods from Canada and Mexico, with a lower 10% tariff on Canadian energy products. China faced a 10% tariff initially, which was later increased to 20%. These actions were justified as measures to protect U.S. industries and address issues like illegal immigration and drug trafficking.
3. Impact on the U.S. economy
Tariffs can have a mixed impact on the economy. They can protect domestic industries by making imported goods more expensive, potentially boosting local production and employment. However, they also increase costs for consumers and businesses, which can lead to higher prices and reduced demand. In 2025, estimates suggested that these tariffs could lower U.S. GDP by up to 0.65% and reduce full-time employment by around 370,000 jobs.
4. Effects on the public consumers
Consumers often bear the brunt of tariffs through higher prices. For instance, tariffs on Mexican fruits and vegetables, Canadian lumber, and Chinese electronics can make these products more expensive in the U.S. market. Additionally, tariffs can lead to a decrease in after-tax incomes, affecting household budgets.
5. Global trade partners' responses
In response to U.S. tariffs, countries like Canada, China, and the European Union have imposed their own tariffs on U.S. goods. This retaliation can lead to a trade war, where countries continuously raise tariffs on each other’s imports. Such conflicts can disrupt global supply chains and increase economic instability.
6. Tariffs and trade agreements
Tariffs often conflict with trade agreements that aim to reduce or eliminate them. For example, the U.S.-Mexico-Canada Agreement (USMCA) is designed to facilitate free trade among these nations. However, the recent tariffs imposed by the U.S. on Canada and Mexico have raised questions about compliance with this agreement.
7. The historical context of tariffs
Tariffs have been used throughout history to influence trade. Notable examples include the Smoot-Hawley Tariff Act of 1930, which exacerbated the Great Depression, and the McKinley Tariff of 1890, which was followed by a severe economic downturn. These historical precedents highlight the potential risks of high tariffs.
8. Tariffs on specific industries
Certain industries are particularly affected by tariffs. For instance, the automotive sector, which relies heavily on cross-border trade for parts and components, faces significant challenges due to tariffs on imports from Canada and Mexico. Similarly, steel and aluminum tariffs can impact construction and manufacturing industries.
9. Government revenue from tariffs
While tariffs can increase government revenue, this income is typically a small fraction of the overall budget. In 2025, it was estimated that tariffs could generate between $229 billion and $263 billion for the U.S. government, but this would still be a single-digit percentage of total government revenue.
10. The future of tariffs
The future of tariffs remains uncertain. As global trade dynamics continue to evolve, countries may adopt more protectionist policies or work towards reducing tariffs through international agreements. The ongoing trade tensions between major economies suggest that tariffs will remain a critical tool in international trade negotiations for years to come.
Bottom line
Tariffs are a complex and influential aspect of international trade, capable of shaping economies and global relations. Understanding their impact, both historically and in the present, is crucial for navigating the challenges and opportunities they present. As the world continues to grapple with trade tensions and economic shifts, tariffs will remain a key factor in shaping the future of global commerce.
