What Are Tariffs — And Are They Good or Bad?

President Trump’s tariff plans that he talked about during his campaign are in full swing. So far, the Trump administration has imposed a 25% tariff on imports from Canada and Mexico, an additional 10% tariff on imports from China, and, as of March 12, a 25% tariff on steel and aluminum imports from all countries. But what are tariffs, and how do they affect people like you and me? Here’s what it means in plain English.

What Are Tariffs, and How Do They Work?

Tariffs are taxes on imported goods and are used to restrict imports. When a country imposes a tariff, it makes foreign products more expensive to buy and less attractive to domestic customers. The idea is to encourage people to buy domestically made goods instead.

For example, if the U.S. places a 15% tariff on Chinese electronics, a $1,000 laptop from China will now cost $1,150. This makes American-made laptops more competitive in price.

There are many types, but the two most common ones are specific tariffs and ad valorem tariffs. 

• Specific tariffs: are levied as a fixed charge per unit of imports. For example, $100 per ton. The amount typically varies depending on the type of goods imported. 
• Ad valorem tariffs: are calculated as a percentage of the value of the product, such as 10% or 25% of an import’s value.

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Why Do Governments Impose Tariffs?

If they make imported goods more expensive for domestic consumers, why do governments impose them? Here are some of the most common reasons: 

• Raise revenue. For example, in 2018 and 2019, the Trump administration imposed tariffs in an effort to rebalance the trade deficit. And in 2019, the customs duties received went up to $71.9 billion, almost double from the year before. 
• Protect domestic industries. ​​Governments may also impose tariffs to protect certain domestic industries. For example, in 2018, Trump imposed a 25% tariff on steel imports from all countries except Mexico and Canada to increase the demand for domestic steel. 
• Protect domestic consumers. According to the White House Fact Sheets, the reason President Trump is imposing a 25% tariff on Mexico, Canada, and China is to hold them accountable to their promises of halting illegal immigration and stopping fentanyl and other harmful drugs from entering the country.
• Address environmental concerns. Some governments may also use tariffs to lower the consumption of imported goods that don’t adhere to certain environmental standards.

A Brief History of Tariffs in the U.S.

Before income taxes were introduced, tariffs were one of the government’s largest revenue sources. Between 1798 and 1913, they accounted for around 50% to 90% of federal income.

One of the most infamous tariff policies in history was the Smoot-Hawley Tariff Act of 1930, which raised tariffs on over 20,000 imported goods. Many blame it for worsening the Great Depression, but the reality is more complicated. Though it did hurt global trade, other factors like stock market crashes and banking failures played a bigger role in the economic downturn.

But times have changed. Over the past 70 years, tariffs have rarely contributed more than 2% of federal revenue. In 2024, for example, U.S. Customs and Border Protection collected $77 billion in tariffs, which was 1.57% of total government income. Plus, around 70% of all products enter the U.S. duty-free. 

Trump’s Current Tariff Plans: What’s Happening Now?

President Trump made it clear before he was re-elected that he would bring back and expand tariffs during his term. And he kept his promise. Here’s a quick rundown of his plans. 

• 25% tariff on steel and aluminum imports: The 25% ad valorem tariff on imports of steel and aluminum from all countries, with no exceptions or exemptions, took effect on March 12.
• European Union: To retaliate against Trump’s trade restrictions on steel and aluminum, the EU responded by imposing counter-tariffs on $28 billion in U.S. goods starting in April. In response, Trump threatens to implement a 200% tariff on wines, champagnes, and alcoholic products if the EU doesn’t remove the tariff on imported U.S. whiskey.
• Canada and Mexico: Trump’s 25% tariffs on Canada and Mexico went into effect on March 4. But just two days later, Trump said he would delay tariffs on goods compliant with the United States–Mexico–Canada Agreement (USMCA) until April 2. Canada retaliated against the steel and aluminum tariffs with new duties on around $20 billion of U.S. goods.
• China: In addition to all existing tariffs, Trump is enacting a new 10% additional tariff on imports from China. In retaliation, China said it would impose 15% tariffs on U.S. gas, coal and other goods. 

How Will Tariffs Affect Your Daily Life?

You may not feel the effects of tariffs immediately after they’re implemented, but they’ll eventually be reflected in your everyday expenses. Here’s how they could affect your daily life and your wallet. 

1. Higher Prices on Everyday Items

Today, around half of our country’s annual imports — more than $1.3 trillion annually — come from China, Canada and Mexico. Imposing hefty tariffs on these countries means U.S. companies will have to pay more for imported materials and goods. And because they often pass those extra costs onto consumers by raising prices on products, this means you’ll pay more for cars, gas, household appliances and even groceries.

The Peterson Institute for International Economics estimates Trump’s tariffs on Canada, Mexico, and China will cost the average American household more than $1,200 a year.

2. Potential Job Losses

Tariffs can also hurt businesses that rely on imported materials, which could lead to higher production costs and layoffs.

A study by Moody’s Analytics estimated that Trump’s trade war with China in 2019 led to the loss of around 300,000 jobs. That number was a combination of jobs cut by companies struggling with tariffs and jobs that would’ve been created but weren’t because of reduced economic activity.

3. Stock Market Volatility

Whenever there’s a major structural shift in the economy, uncertainty follows. On March 10, the S&P 500 closed 8.6% lower than its Feb. 19 record high, wiping out over $4 trillion in market value. Tesla also lost more than $125 billion in value in that one single day. 

If you’re investing in stocks, especially in companies that depend on international trade, be prepared to see more fluctuations in your portfolio. 

4. Retaliatory Tariffs

Other countries often respond to U.S. tariffs by imposing their own to make it harder for American businesses to sell goods abroad. This can affect farmers, manufacturers and companies that export their products. As mentioned earlier, Canada, China and the EU have all retaliated against the U.S. by implementing tariffs on certain goods.

Pros and Cons of Tariffs

They do have their drawbacks, but they also have benefits. Here are the pros and cons of these trade barriers. 

Pros

• Protect domestic industries from foreign competition
• Encourage companies to produce in the U.S.
• Open negotiation for trade or other issues 
• Raise government revenue

Cons 

• Higher consumer prices
• Risk trade wars and retaliation from other countries
• Hurt industries that rely on imported goods

Brace for Impact 

New tariffs are coming that American consumers will bear the brunt of the impact of. Unfortunately, there’s not much you can do about it. Things will get more expensive, so you either have to absorb the extra costs, look for alternatives or cut down your consumption. 
For now, it’s worth keeping an eye on tariff developments. Beef up your emergency fund and start a side hustle to prepare for higher costs and potential economic turbulence.

​​Jamela Adam is a personal finance writer covering topics such as savings, investing, mortgages, student loans and more. Her work has appeared in Forbes Advisor, Chime, U.S. News & World Report, RateGenius and GOBankingRates, among other publications.