Would Trump’s Tariffs Send Prices Soaring for Americans?

BU Today: Trump says tariffs are paid by our foreign competitors, but aren’t they actually assessed on the American firms that import and sell foreign-made goods?

If it were only that simple. 

The costs of tariffs are borne by the importer and collected by customs and border protection agents. These funds then flow to the coffers of the US Treasury. However, importers attempt to recoup these added costs—taxes—by passing them on to consumers. Given China is one of our larger suppliers, these tariff hikes will ultimately be paid for by US consumers. Based on a 2024 study conducted by the Peterson Institute for International Economics, Trump tariff hikes could increase the annual costs to US consumers by $2,600. When goods are more expensive, consumers are effectively made poorer.

The United States is the largest importer of goods in the world. China is a top supplier of these goods. Tariffs against China, even if they were not to retaliate, would increase costs to US consumers. Tariff wars are also an impediment for global trade, increasing the cost of domestic manufacturers who source raw materials from abroad.

Tariffs should never be viewed in isolation, as such taxing can produce a ripple effect. When the US taxes target China goods, the producer country can retaliate by raising taxes on US-produced goods.

BU Today: At a time of high US deficits, Trump says tariffs provide the government with extra revenue. Is that grounds for raising tariffs?

Tariffs put money in the pocket of the government, but take it out of the pocket of consumers. As a result, tariffs are an inefficient way for governments to collect tax revenue.

BU Today: Mexico has threatened to retaliate with its own tariffs if Trump follows through. How seriously would that hurt the US economy, and what are the other downsides of tariffs?

Engaging in a tariff war with Mexico is dangerous policy and creates a game of thrones, as trading partners retaliate by adding their own tariffs. Given two-thirds of the US economy is driven by consumption, increases in prices could slow down the economy. Mexico is our top trading partner, representing over $800 billion, or 16 percent of trade. This is a two-way trading relationship. As partners, both gain economic benefit from this relationship. The United States in 2023 sold over $322 billion in goods such as computers, car parts, and other electronics to Mexico. The country sends about 80 percent of its products to the United States, ranging from agricultural goods that stock our grocery shelves to oil we use for the cars we drive.

Mexico’s new president has also made it clear she would not sit quietly, but would retaliate. Doing so could raise inflation and cost 400,000 US jobs. Under such a scenario, there are no winners.

BU Today: If tariffs are bad, how should the United States most effectively help working-class citizens, many of whom voted for Trump?

Tariffs can help politicians get elected, but they are not the best way to stabilize and grow a middle-class workforce. The costs of everything from homes, cars, and groceries continue to outpace wage increases, which has left the working class anxious about job security and future financial prospects.

Macroeconomic trends, including globalization, continue to challenge our working-class workforce, as US manufacturing jobs have moved and remain offshore. Higher wages needed to keep pace with higher daily costs make US workers less competitive globally, especially given that rapidly developing lower-wage countries such as India are eager to step in.

To rebuild a stronger middle class will require investment in workforce development, training, targeting strategic US industries, and increasing innovation and entrepreneurship. Increasingly, technology is a greater part of most jobs and occupations, requiring ongoing training. Greater investment in vocational schools to produce a highly skilled technical workforce should be mandatory. Entrepreneurism is also vital, as new start-ups are important job creators. One of the engines of job growth is immigrants. While research has proven that foreign-born are two times more likely to start new companies than native-born counterparts, Trump’s anti-immigration policies are at odds with what is needed to ignite start-up generation, new jobs, and grow the middle-class workforce.