In practical terms, a tariff is a domestic tax levied on goods as they enter the country, proportional to the value of the import. Tariffs are also trade barriers that economically burden foreign exporters and consumers. They represent a double-edged sword.

During the 2024 campaign, Pres. Donald Trump made tariffs a central part of his economic plan.  Once sworn in as president, he doubled down and even escalated the trade war with friends and foes. 

Here are some details of how tariffs work.  For example, let’s say a US dealership imports a 30,000-dollar vehicle from South Korea with a 25% tariff.  Let’s do the math: tariff would be 30,000 x 25% =7,500.  Therefore, the tariff equals 7,500, which will be added to the initial cost of the vehicle, bringing the total to 30,000 + 7,500 = 37,500 dollars. 

In this case, the dealership has two options: it can sell the vehicle above 37,500 by passing on the tariff (7,500) to the buyer and making some profit, or it can absorb the cost of the tariff, which would be an automatic loss. If this negative business model continues, the dealership will eventually go bankrupt.

Tariffs offer some advantages.  For example, the US government imposes tariffs to raise revenue, protect domestic industries, or exert political leverage over other countries.  Pres. Trump claimed that tariffs created “vast wealth for our country” and “will pay off our debt and make America wealthy again.”

Other benefits of tariffs include protecting jobs and domestic businesses.  The goal is to ramp up the manufacturing of goods within the country and to shield local industries by making imports more expensive and drawing consumers to domestic producers.

Here are some disadvantages of tariffs.  Tariffs raise the prices of goods.  The more tariffs imposed on goods, the higher the burden on consumers.  PWBM (Penn Wharton Budget Model) projects Trump tariffs would reduce GDP by about 8% and wages by 7%. Tariffs reduce available goods and services for US businesses and consumers, resulting in lower income and economic output.

Retaliatory or tit-for-tat tariffs are among the “multifaceted harms of protectionist measures”, said the Cato Institute.

On April 9, 2025, China responded to the US’s high tariffs by imposing 84 percent tariffs on all US exports. Then, on April 11, China again increased its tariffs to 125 percent. Canada, Mexico, the European Union and other countries followed suit with their tariff retaliation.

Engaged in a trade war, the United States risks falling short of certain critical products it must import to meet current needs. There are a few, but perhaps the worst deficiencies are in the platinum group metals, critical minerals, rare earth metals and tin. Let’s assume that all the countries that produce those minerals stop exporting or export less of those minerals to the United States. That deficiency would have caused panic in the US business world. China, for example, often retaliates by using those tactics.

JP Morgan Research has concluded that tariffs will cause inflation that dents purchasing power; consumers will cut back, leading to lower spending growth in 2026.  It was also noted that tariffs will cause a material impact on the global economy

Economists generally agree that free trade increases economic output and income, while trade barriers (tariffs) reduce them. A trade war produces no clear winner but a commercial illusion.

Sources: Yahoo Finance.