Will Donald Trump’s tariffs on Mexico, Canada harm US consumers?

During his campaign, Trump reassured voters that these tariffs would not burden Americans, claiming the cost would fall on other countries. However, many economists, as reported by BBC, disagree with this view.

What are Tariffs and who pays them?

A tariff is a tax on imported goods. For example, if a car worth $50,000 (£38,000) is subject to a 25% tariff, an extra $12,500 tax is added. The company importing the car pays this fee, but the final cost often gets passed on to consumers through higher prices.

In 2023, the US imported goods worth $3.1 trillion, making up 11% of its GDP. The tariffs collected that year generated $80 billion in tax revenue, roughly 2% of total US tax income.

However, the economic burden of tariffs is complex. Some businesses absorb the costs, reducing their profits. In other cases, exporters lower their prices to remain competitive. But most economic studies suggest that consumers end up paying more.

Impact of Tariffs on prices

Trump’s previous tariffs significantly raised prices for American buyers, according to BBC. A clear example is washing machines.

In 2018, Trump imposed a 50% tariff on imported washing machines. As a result, prices rose by 12% (about $86 per unit), leading to US consumers paying an extra $1.5 billion per year.

According to the Peterson Institute for International Economics, Trump’s new tariff plan could reduce the income of American families. The poorest households may lose 4% of their income, while middle-class families might face losses of $1,700–$3,900 per year.

Economists warn that further tariffs could increase inflation, making essential goods even more expensive.

Will Tariffs protect jobs?

Trump argues that tariffs will protect US jobs. He told voters: “American workers will no longer be worried about losing your jobs to foreign nations. Instead, foreign nations will be worried about losing their jobs to America.”

However, economists say tariffs have not significantly helped job creation. When Trump imposed a 25% tariff on imported steel in 2018, it was meant to protect US steelworkers. Yet, by 2020, US steel industry jobs had fallen from 84,000 to 80,000.

Moreover, tariffs hurt other industries that rely on imported materials. For example, companies using steel for manufacturing, like agricultural machinery maker Deere & Co, faced higher costs, leading to fewer jobs in those sectors.

Trade deficit still rising

Trump has often spoken about reducing America’s trade deficit—the difference between the value of imports and exports. “Trade deficits hurt the economy very badly,” he has said.

However, despite his tariffs, the US trade deficit increased from $480 billion in 2016 to $653 billion by 2020.

Economists, as reported by BBC, explain that tariffs raised the value of the US dollar, making American exports more expensive globally.

Additionally, companies found loopholes to bypass tariffs. For instance, Chinese solar panel manufacturers moved their operations to Malaysia, Thailand, and Vietnam to avoid paying US tariffs.

Do experts support Trump’s tariff plans?

A few economists, such as Jeff Ferry from the Coalition for a Prosperous America, argue that tariffs can help boost US industry.

Conservative think tank American Compass also suggests that tariffs encourage firms to keep production in America, improving national security and supply chain stability.

However, most economists believe tariffs have more drawbacks than benefits. Interestingly, the Biden administration has kept many of Trump’s tariffs and introduced new ones on Chinese electric vehicles, citing national security and unfair competition.

While Trump’s tariffs aim to boost the US economy and protect jobs, most research suggests they increase prices for consumers, hurt some industries, and fail to reduce the trade deficit. The long-term impact of these tariffs on the economy remains uncertain.

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