Trump’s tariffs: What they are, how they work
So is this what a trade war looks like?
The Trump administration and China’s leadership have imposed tens of billions of dollars in tariffs on each other’s goods. President Donald Trump has proposed slapping duties on, all told, up to $550 billion if China keeps retaliating and doesn’t cave in to US demands to scale back its aggressive industrial policies.
Trump enraged such US al- lies as Canada, Mexico and the European Union this spring by slapping tariffs on their steel and aluminum shipments to the United States. The tariffs have been in place on most other countries since March.
The president has also asked the US Commerce Department to look into imposing tariffs on imported cars, trucks and auto parts, arguing that they pose a threat to US national security.
Here is a look at what tariffs are, how they work, how they’ve been used in the past and what to expect now:
Are we in a trade war?
Economists have no set definition of a trade war. But with the world’s two largest economies now slapping potentially punishing tariffs on each other, it looks as if a trade war has arrived. All told, Trump has threatened to hit as much as $550 billion worth of China’s exports to the US with punitive tariffs. That’s more than the $506 billion in goods that China shipped to the United States last year.
It’s not uncommon for countries — even close allies — to fight over trade in specific products. The United States and Canada, for example, have squabbled for decades over softwood lumber.
But the US and China are fighting over much broader issues, like China’s requirements that American companies share advanced technology to access China’s market, and the overall US trade deficit with China. So far, neither side has shown any sign of bending.
So what are tariffs?
Tariffs are a tax on imports. They’re typically charged as a percentage of the transaction price that a buyer pays a foreign seller.
In the United States, tariffs — also called duties or levies — are collected by Customs and Border Protection agents at 328 ports of entry across the country. Proceeds go to the Treasury. The tariff rates are published by the US International Trade Commission in the Harmonized Tariff Schedule, which lists US tariffs on everything from dried plantains (1.4 percent) to parachutes (3 percent).
Sometimes, the US will impose additional duties on foreign imports that it determines are being sold at unfairly low prices or are being supported by foreign government subsidies.
What are tariffs supposed to accomplish?
Two things: Raise government revenue and protect domestic industries from foreign competition.
Before the establishment of the federal income tax in 1913, tariffs were a big money raiser for the US government. From 1790 to 1860, for example, they produced 90 percent of federal revenue, according to “Clashing Over Commerce: A History of US Trade Policy” by Douglas Irwin, an economist at Dartmouth College. By contrast, last year tariffs accounted for only about 1 percent of federal revenue.
In the fiscal year that ended last Sept. 30, the U.S. government collected $34.6 billion in customs duties and fees. The White House Office of Management and Budget expects tariffs to fetch $40.4 billion this year.
Tariffs also are meant to increase the price of imports or to punish foreign countries for committing unfair trade practices, like subsidizing their exporters and dumping their products at unfairly low prices.
Tariffs discourage imports by making them more expensive. They also reduce competitive pressure on domestic competitors and can allow them to raise prices.
Tariffs fell out of favor as global trade expanded after World War II.
The formation of the World Trade Organization and the advent of trade deals like the North American Free Trade Agreement among the US, Mexico and Canada reduced tariffs or eliminated them altogether.
Why are tariffs making a comeback?
After years of trade agreements that bound the countries of the world more closely and erased restrictions on trade, a populist backlash has grown against globalization. This was evident in Trump’s 2016 election and the British vote that year to leave the European Union — both surprise setbacks for the freetrade establishment.