Tariffs for goods imported in the US are not new, but today they are being discussed as much wider tools in a more complicated world.
Before the Constitution was signed, tariffs have reduced the competition of the US enterprise and increased the cost of goods. Today, they have been proposed to restore US manufacturing work into communities that provided the President to his strongest support, while also used as geopolitical remedies with unsafe consequences.
“I think there are broader questions of the political economy that surround the tariff proposals today,” said Katheryn Russ, a professor of economics at the UC Davis College of Languages and Sciences and the leading expert on the international economy. “You can say that tariffs can solve issues of inequality, but it is really the net outcome of all taxes, the net social security and spending policies that determine whether this administration favors non-colleague educated workers.”
What is the fee?
A fee is a type of tax that a government adds to imported goods. Companies that import goods pay the government tariff. If any part of a product arrived at a fee, whether it is an imported banana or a car built with imported steel, its cost is part of the price that daily customers pay before sales tax.
“You don’t see the front fees in the store and you don’t see them on the bill, but they are embedded in the price of good,” said Russian, who recently co -author a chapter on fees and macroeconomics in the future Oxford Encyclopedia of International Economy (Oxford University Press).
Tariffs increase the price of some goods, but their additional cost is partially deleted because many of what we buy today are made of parts and materials from all of a global value chain. Raw materials, collected ingredients and even the design for a single product can be resigned from all many places.
“When we set tariffs on imported goods, the costs of these tariffs are embedded in the price of what we buy in very complicated ways,” Russian said.
How do tariffs affect consumers?
Fees affect customers in two main ways. First, they increase the cost of what we buy when the increased cost, which companies pay as a tax for the federal government, is passed on to consumers. Second, they can reduce the range of products available by making it useless.
“Customers will surely have to pay higher prices, and they may even have a lower range of choices in the store because some things are simply too expensive to disturb importing,” said Christopher Meissner, a professor of economics at the College of Letters and Science at UC Davis.
Meissner is a leading expert on international trade. His last book, One of the many: Global Economy since 1850 (Oxford University Press, 2024), detail the economic history of the global economy, based on the idea of globalization on the technologies that make it possible.
After all, tariffs can increase the overall cost of living.
“Once you start raising import prices, this will simply increase the cost of living, and wages will have to respond to offset some of those higher costs,” Meissner said.
How do tariffs affect business?
One argument for tariffs is that they protect local companies from foreign competitors who can underestimate them for prices. Alexander Hamilton, one of the founding fathers, argued that tariffs and other protection from foreign competition would make American industries more productive and competitive.
Meissner’s new research shows that in the late 1800s, tariffs did not make us more productive businesses, but had the opposite effect. Meissner’s study of US tariffs from 1870 to 1909 found that an increase in 10 percentage tariffs reduced internal productivity between 25% and 35%.
“Less competitive industries are less innovative, and less innovative industries are less productive,” Meissner said. “Tariffs probably weakened incentives to innovate and come up with simple processes that companies keep in their fingers and high productivity.”
Today, many American work depends indirectly on production, even if that production takes place abroad. Meissner said production is a smaller part of the US, or GDP, compared to what has been historically. According to the Federal Reserve of St. Louis, the portion of GDP production fell from 28.1% to 1953 to 12% in 2015.
“We design it, we bring it to the market, and we do all the engineering here, so those jobs will also be affected by today’s tariffs even though it is a complex complex economy than it used to,” Meissner said.
How do tariffs affect the national economy?
Tariffs affect the national economy today very different from those never due to the state of the global economy. The past four decades have seen a steady increase in cheaper international imports, especially from China, in an industry where American production processes were standardized and thus were linked less in areas with high concentrations of specialized workers, highly educated .
In recent research, Russian and Coauthors by UC Davis and George Washington University found that this shift in the lowest cost output that was increasingly external from the northeastern United States in the south and west with more work It had already begun in the middle of the 20th century then the increase in import from China around 1990 aroused a rapid economic discovery.
“In some communities, the shock of increasing imports occurred so quickly that it essentially circulated this more gradual product that had already continued for decades,” Russian said.
Russian said the impacts of this change have been very focused on American communities that already had higher unemployment rates and fewer college educated workers.
“We assumed that our trade regulation assistance and our net social security programs would take care of all this, but in fact it didn’t happen, and we saw great impacts of employment focused on some of our most endangered communities, “Russ said.
At that time, tariffs seemed an ideal tool to protect domestic production from disappearance under the swelling of foreign freedoms. Today, Russian explained, it’s not that simple. A country like China can avoid tariffs by investing in production or assembly in another country that is not subject to the same fees. Tariffs can quickly lead to an endless shell game to avoid them.
At the World Economic Forum in January, the President asked the countries to make products in the US in exchange for a very low level of corporate taxes – or their products will face tariffs to serve the US market. Russian said this idea reaches a notice of a whole board fee.
“All our trade partners will be affected, so this is a fee across the board,” Russian said. “This is something new we do not see in Trump’s first administration. He is talking about trying to create a revival of various industries within the United States by building a fee wall to reduce imports.”
What are the possible consequences of the Trump tariff plan?
Tariffs today are being discussed as more than tools to protect US companies. They are referred to as a means of restoring production, as well as a bargain tactic in negotiations on immigration and Fentanil’s flow.
However, tariffs are used, they are likely to be fulfilled with revenge, as China immediately retaliated with their fees after the trade war began in 2018 under Trump’s first administration. In February 2025, the China government announced revenge tariffs and other measures affecting US business.
“Once we start collecting fees for our main trading partners as proposed, they will probably take revenge, and those revenge will make a lot of positive effects, if any,” Meissner said.