President Trump’s tariff initiatives, which he outlined during his campaign, are now in motion. On April 2 he unveiled a broad 10% tariff on all U.S. imports, along with reciprocal duties — some reaching as high as 50%. While many of those reciprocal measures were put on hold for 90 days as of April 9 (with the exception of China), several other levies remain active. But what exactly are tariffs in straightforward terms, and how do they impact people like you and me? Here’s a plain-English explanation.
What Are Tariffs, and How Do They Operate?
Tariffs are taxes applied to imported products and are used to curb imports. When a government enacts a tariff, it raises the cost of foreign-made items, making them less appealing to local buyers. The goal is typically to steer consumers toward goods produced domestically.
For instance, if the U.S. enforces a 15% tariff on electronics from China, a $1,000 Chinese-made laptop would now cost $1,150. That price increase can make laptops manufactured in the U.S. comparatively more attractive.
There are several kinds of tariffs, but the two most common forms are specific tariffs and ad valorem tariffs.
- Specific tariffs: imposed as a fixed fee per unit of an imported good, such as $100 per ton. The charge generally varies by the type of product being imported.
- Ad valorem tariffs: calculated as a percentage of the product’s value, for example 10% or 25% of the import’s declared worth.
Why Do Governments Use Tariffs?
Given that tariffs raise the price of imported goods for domestic buyers, why do governments choose to impose them? Here are some of the most common motives:
- Raise revenue. For example, during 2018 and 2019 the Trump administration used tariffs as part of an effort to address the trade deficit. In 2019 customs duties climbed to $71.9 billion, nearly double the prior year’s receipts.
- Protect domestic industries. Governments sometimes levy tariffs to shelter specific local industries. In 2018, for instance, the administration applied a 25% tariff on steel imports (with exceptions for Mexico and Canada at that time) to boost demand for U.S.-made steel.
- Protect domestic consumers. According to the White House Fact Sheets, the 25% tariffs on Mexico, Canada, and China were framed as a way to hold those countries accountable for commitments to curb illegal immigration and stop fentanyl and other harmful substances from entering the U.S.
- Address environmental or policy concerns. Some governments employ tariffs to discourage imports that don’t meet environmental or other regulatory standards.
A Short History of Tariffs in the U.S.
Before the advent of income tax, tariffs were among the federal government’s primary revenue sources. From roughly 1798 through 1913, they accounted for about 50% to 90% of federal receipts.
One of the most notorious tariff laws was the 1930 Smoot-Hawley Tariff Act, which increased duties on more than 20,000 imported items. While it’s often blamed for deepening the Great Depression, the full picture is more complex: the act harmed global trade, but other major events — such as stock market collapses and banking system failures — had substantial roles in the economic crisis.
In the modern era, tariffs account for a tiny share of federal revenue. Over the last seven decades they’ve seldom contributed more than 2% of government income. In 2024, for example, U.S. Customs and Border Protection collected $77 billion in tariffs, equal to about 1.57% of total federal revenue. Furthermore, roughly 70% of products enter the U.S. duty-free.
Trump’s Current Tariff Agenda: What’s Unfolding Now?
Before his re-election, Trump pledged to reinstate and broaden tariffs, and he followed through. Below is a summary of the current measures.
- 10% across-the-board tariffs on U.S. imports: Announced on April 2, these sweeping duties were paired with reciprocal tariffs intended to shrink the trade imbalance. The reciprocal levies were suspended for 90 days as of April 9.
- 25% tariffs on foreign cars and parts: These took effect on April 2. Although roughly half of new cars sold in the U.S. are assembled domestically, many still rely on imported components.
- 25% tariffs on steel and aluminum: An ad valorem 25% duty on steel and aluminum imports from all countries (with no exemptions) went into effect on March 12.
- European Union: The EU retaliated against U.S. steel and aluminum restrictions by imposing counter-duties on $28 billion of U.S. exports beginning in April. In response, Trump has threatened a 200% tariff on certain alcoholic beverages like wines and champagnes if the EU maintains tariffs on American whiskey.
- Canada and Mexico: The administration’s 25% tariffs on goods from Canada and Mexico went into effect on March 4. Two days later, the president postponed tariffs on items covered by the United States–Mexico–Canada Agreement (USMCA) until April 2. Canada countered by levying duties on about $20 billion of U.S. goods. Both nations are exempt from the new reciprocal tariffs.
- China: Trump initially imposed an extra 34% duty on Chinese imports, prompting China to announce retaliatory 34% tariffs on U.S. products. Subsequent measures escalated duties on Chinese goods to as much as 125%.
How Tariffs Could Touch Your Everyday Life
The impact of tariffs might not be immediate, but over time they tend to show up in the costs of everyday goods. Here are several ways tariffs can affect your daily finances.
1. Higher Costs for Common Items
About half of the nation’s annual imports — more than $1.3 trillion each year — come from China, Canada and Mexico. Applying steep tariffs to those countries forces U.S. businesses to pay more for imported materials and finished goods. Companies typically pass those extra expenses on to consumers via higher prices, meaning you may pay more for cars, gasoline, appliances and groceries.
The Peterson Institute for International Economics projects that tariffs on Canada, Mexico and China could raise costs for the average American household by over $1,200 per year.
2. Potential Job Cuts
Tariffs can harm businesses that depend on imported inputs, raising production costs and potentially leading to layoffs.
A analysis by Moody’s Analytics estimated that the 2019 trade conflict with China resulted in the loss of about 300,000 jobs — a mix of positions eliminated by tariff-strapped firms and jobs that weren’t created because economic activity slowed.
3. Market Turbulence
Major structural changes in trade policy tend to produce uncertainty. By April 7, the stock market had entered bear-market territory, defined as a decline of 20% or more. The S&P 500 suffered its worst week since March 2020 the week before, though it recovered somewhat after the 90-day tariff pause was announced.
If you hold equities, particularly in firms reliant on global trade, expect potentially greater volatility in your portfolio.
4. Retaliatory Duties from Other Countries
When the U.S. imposes tariffs, trading partners frequently strike back with their own duties to protect domestic producers, which can make it tougher for American exporters. As noted earlier, Canada, China and the EU have all enacted retaliatory tariffs on certain U.S. goods.
Tariffs: Benefits and Drawbacks
Tariffs come with both advantages and disadvantages. Here’s a quick breakdown.
Pros
- Shield domestic industries from foreign competition
- Encourage manufacturers to produce within the U.S.
- Create leverage for negotiating trade or other policy objectives
- Generate government revenue
Cons
- Raise costs for consumers
- Can spark trade wars and retaliation
- Hurt sectors that depend on imported materials
Prepare for the Consequences
With broad-based tariffs now in place, American consumers are likely to shoulder a significant portion of the economic effects. There’s limited action individuals can take to stop higher prices, but you can adjust: absorb some added costs, seek lower-cost alternatives, or reduce consumption. Keep tracking tariff developments and consider strengthening your emergency savings and exploring a side income to brace for rising expenses and possible economic turbulence. For tips on minimizing the effects of trade barriers, you might also find guidance on how to avoid tariffs useful.
Dana Mercer is a personal finance writer who covers saving strategies, investing, mortgages, student loans and more. Her work has appeared in Forbes Advisor, Chime, U.S. News & World Report, RateGenius and GOBankingRates, among other outlets.
