By Chao Deng
The Trump administration said Saturday it would levy 25% import tariffs on goods from Mexico and Canada, with Canadian energy products facing a 10% tariff. The announcement also includes an extra 10% tariff on imports from China. The tariffs were initially set to take effect Tuesday, though Monday morning, the tariffs on Mexican goods were pushed out by 30 days, during which the U.S. and Mexico will hold negotiations. Meanwhile, Canada has already announced retaliatory tariffs.
The machinery of tariffs is complicated. How they will play out isn't certain, largely because the White House appears to be partly using them as a negotiating tool. But here are answers to a few fundamental questions about how they work, and their immediate impact to American businesses and consumers:
Who pays the tariffs?
The firms importing the goods, many of which are American individuals and businesses, will pay for the tariffs.
Who bears the ultimate burden of the tariffs however isn't so straightforward. An American importer can pass along the cost of tariffs to American businesses or consumers by raising its prices. Alternatively, a foreign exporter might ultimately shoulder the burden if it cuts prices to avoid losing sales.
If the tariffs prompt U.S. companies to turn to other countries for imports, those levies can be avoided, of course. In those instances, however, Canadian, Mexican and Chinese workers might lose jobs. Under that scenario, Americans would also likely pay higher prices, with more goods coming from alternative suppliers that face higher costs. If production shifts to the U.S., Americans would likely pay higher prices as well, though some of that would likely go toward the wages and profits of other Americans.
What sort of goods will be affected?
Prices of a host of items are likely to rise, from cars to gas, smartphones, and fresh vegetables.
Since the U.S. buys billions of dollars of lumber from Canada, the cost of home construction might go up. The U.S. also relies to a significant degree on Canada to supply its frozen french fries.
The cost of electronics and toys imported from China are expected to go up. And if tariffs on Mexico are implemented, grocery goods from tequila, to avocados and tomatoes are also likely to get higher price tags, potentially affecting millions of American households.
Which firms will feel the impact?
During President Trump's first term, American firms had an opportunity to apply for exemptions from tariffs. And many were granted. For instance, Apple won tariff exemptions for some of its China-made products.
Whether there will be a process to apply for exemptions this time around is unclear. A senior administration official told reporters on Saturday that there will be no exemptions to the tariffs. Instead, the duties will be in place until the White House is satisfied that the trading partners have scrubbed out the illicit fentanyl moving into the U.S.
How do these tariffs compare with those from Trump's first term?
They are bigger.
Start with China. Tariffs imposed by the U.S. in 2018 and 2019 -- during Trump's first term -- covered nearly two-third of all imports from China, or roughly $370 billion in annual goods. Tariffs this time apply to all Chinese exports to the U.S., which totaled around $401.4 billion in the first 11 months of 2024, according to Census Bureau data.
This round of tariffs also targets Mexico and Canada with sweeping, 25% tariffs on most products. In January through November of 2024, the U.S. imported $466.6 billion worth of goods from Mexico and $377.2 billion worth of goods from Canada.
During Trump's first term, his administration imposed tariffs on steel and aluminum from Canada and Mexico for about one year. Tariffs he announced on all imports from Mexico were averted after a new free-trade agreement was hashed out by the U.S., Mexico and Canada (USMCA).
This round of action by Trump also targets the "de minimis" loophole which allows shipments valued under $800 to enter the U.S. duty-free. Use of the trade provision has ballooned in recent years, partly through the explosive growth of Chinese e-commerce merchants. The U.S. will suspend this loophole for Canada, because of concerns that packages from there aren't being properly inspected under the exemption.
What should we expect moving forward?
Retaliation, negotiations and a lot of uncertainty.
Canadian Prime Minister Justin Trudeau said his country would retaliate with 25% tariffs on more than $105 billion of U.S. goods, about a third of the $322.2 billion in goods that the U.S. exported to Canada in the first 11 months of 2024, according to U.S. census data. The first wave -- hitting $20 billion worth of goods, including alcohol, coffee, clothing and shoes -- will take effect Tuesday. The rest is slated to take effect in three weeks.
The 30-day reprieve for Mexico was announced after Mexican President Claudia Sheinbaum and Trump agreed to take joint measures to fight fentanyl trafficking across the U.S. border. Sheinbaum had threatened to retaliate with tariffs and nontariff measures.
China's initial response has little bite. The Chinese Commerce Ministry said it would challenge the tariffs at the World Trade Organization, whose mechanism for resolving trade disputes has been disabled since Trump's first term; China also urged "frank dialogue."
The responses will likely affect hundreds of billions worth of U.S. exports to the three countries. In January through November of 2024, the U.S. exported $309.4 billion worth of goods to Mexico, and $131 billion to China.
Write to Chao Deng at chao.deng@wsj.com
This explanatory article may be updated periodically.
(END) Dow Jones Newswires
February 03, 2025 13:52 ET (18:52 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments