By Kent Jones
The U.S. Supreme Court is currently reviewing a case to determine whether President Donald Trump’s global tariffs are legal.
Until recently, tariffs rarely made headlines. Yet today, they play a major role in U.S. economic policy, affecting the prices of everything from groceries to autos to holiday gifts, as well as the outlook for unemployment, inflation and even recession.
I’m an economist who studies trade policy, and I’ve found that many people have questions about tariffs. This primer explains what they are, what effects they have, and why governments impose them.
What are tariffs, and who pays them?
Tariffs are taxes on imports of goods, usually for purposes of protecting particular domestic industries from import competition. When an American business imports goods, U.S. Customs and Border Protection sends it a tariff bill that the company must pay before the merchandise can enter the country.
Because tariffs raise costs for U.S. importers, those companies usually pass the expense on to their customers by raising prices. Sometimes, importers choose to absorb part of the tariff’s cost so consumers don’t switch to more affordable competing products. However, firms with low profit margins may risk going out of business if they do that for very long. In general, the longer tariffs are in place, the more likely companies are to pass the costs on to customers.
Importers can also ask foreign suppliers to absorb some of the tariff cost by lowering their export price. But exporters don’t have an incentive to do that if they can sell to other countries at a higher price.
Studies of Trump’s 2025 tariffs suggest that U.S. consumers and importers are already paying the price, with little evidence that foreign suppliers have borne any of the burden. After six months of the tariffs, importers are absorbing as much as 80% of the cost, which suggests that they believe the tariffs will be temporary. If the Supreme Court allows the Trump tariffs to continue, the burden on consumers will likely increase.
While tariffs apply only to imports, they tend to indirectly boost the prices of domestically produced goods, too. That’s because tariffs reduce demand for imports, which in turn increases the demand for substitutes. This allows domestic producers to raise their prices as well.
A brief history of tariffs
The U.S. Constitution assigns all tariff- and tax-making power to Congress. Early in U.S. history, tariffs were used to finance the federal government. Especially after the Civil War, when U.S. manufacturing was growing rapidly, tariffs were used to shield U.S. industries from foreign competition.
The introduction of the individual income tax in 1913 displaced tariffs as the main source of U.S. tax revenue. The last major U.S. tariff law was the Smoot-Hawley Tariff Act of 1930, which established an average tariff rate of 20% on all imports by 1933.
Those tariffs sparked foreign retaliation and a global trade war during the Great Depression. After World War II, the U.S. led the formation of the General Agreement on Tariffs and Trade, or GATT, which promoted tariff reduction policies as the key to economic stability and growth. As a result, global average tariff rates dropped from around 40% in 1947 to 3.5% in 2024. The U.S. average tariff rate fell to 2.5% that year, while about 60% of all U.S. imports entered duty-free.
While Congress is officially responsible for tariffs, it can delegate emergency tariff power to the president for quick action as long as constitutional boundaries are followed. The current Supreme Court case involves Trump’s use of the International Emergency Economic Powers Act, or IEEPA, to unilaterally change all U.S. general tariff rates and duration, country by country, by executive order. The controversy stems from the claim that Trump has overstepped his constitutional authority granted by that act, which does not mention tariffs or specifically authorize the president to impose them.
The pros and cons of tariffs
In my view, though, the bigger question is whether tariffs are good or bad policy. The disastrous experience of the tariff war during the Great Depression led to a broad global consensus favoring freer trade and lower tariffs. Research in economics and political science tends to back up this view, although tariffs have never disappeared as a policy tool, particularly for developing countries with limited sources of tax revenue and the desire to protect their fledgling industries from imports.
Yet Trump has resurrected tariffs not only as a protectionist device, but also as a source of government revenue for the world’s largest economy. In fact, Trump insists that tariffs can replace individual income taxes, a view contested by most economists.
Most of Trump’s tariffs have a protectionist purpose: to favor domestic industries by raising import prices and shifting demand to domestically produced goods. The aim is to increase domestic output and employment in tariff-protected industries, whose success is presumably more valuable to the economy than the open market allows. The success of this approach depends on labor, capital and long-term investment flowing into protected sectors in ways that improve their efficiency, growth and employment.
Critics argue that tariffs come with trade-offs: Favoring one set of industries necessarily disfavors others, and it raises prices for consumers. Manipulating prices and demand results in market inefficiency, as the U.S. economy produces more goods that are less efficiently made and fewer that are more efficiently made. In addition, U.S. tariffs have already resulted in foreign retaliatory trade actions, damaging U.S. exporters.
Trump’s tariffs also carry an uncertainty cost because he is constantly threatening, changing, canceling and reinstating them. Companies and financiers tend to invest in protected industries only if tariff levels are predictable. But Trump’s negotiating strategy has involved numerous reversals and new threats, making it difficult for investors to calculate the value of those commitments. One study estimates that such uncertainty has actually reduced U.S. investment by 4.4% in 2025.
A major, if underappreciated, cost of Trump’s tariffs is that they have violated U.S. global trade agreements and GATT rules on nondiscrimination and tariff-binding. This has made the U.S. a less reliable trading partner. The U.S. had previously championed this system, which brought stability and cooperation to global trade relations. Now that the U.S. is conducting trade policy through unilateral tariff hikes and antagonistic rhetoric, its trading partners are already beginning to look for new, more stable and growing trade relationships.
So what’s next? Trump has vowed to use other emergency tariff measures if the Supreme Court strikes down his IEEPA tariffs. So as long as Congress is unwilling to step in, it’s likely that an aggressive U.S. tariff regime will continue, regardless of the court’s judgment. That means public awareness of tariffs – and of who pays them and what they change – will remain crucial for understanding the direction of the U.S. economy.
Kent Jones is Professor Emeritus in Economics at Babson College.
Ed P says
Dr. Jones is a well respected economist.
What he glosses over is the basic fact that when a trade deficit is used for imposing tariffs, there isn’t any theoretical basis for that in economics.
Thus far, the experts have been wrong. It takes time for “re-shoring.” Manufacturing plants aren’t built overnight. No one disputes the fact that tariff will raise some prices, and short term market disruption will occur. The question is, will it be worth it and actually be a positive for consumers in total?
Global trade without the United States will not be effective so our foreign trading partners will all learn to navigate this new reality. The economy, Wall Street, nor Main Street have been destroyed like many alarmist predicted.
With every equation the sum of the equation is the correct answer. More time is needed and if the “net” of the tariff’s consumer cost is neutralized by an increased GDP along with any other savings like lower interest rates, decreased governmental spending, then the economic expansion may quite possibly grow the economy into the golden age that Trump envisions. JFK used the phrase,” a rising tide lifts all boats”
The reality of the 38 billion dollar budget deficit and the unwillingness for congress to stop spending, requires this economic growth spurt. The increased tariff revenues certainly generate a large income. Tariffs have always been a funding source for our county.
Increased GDP and tariffs are not the sole the answer but rather a part of the equation that could bring us to a “sum” that does not shackle future generations with a deficit that steals their American Dream.
Have any of the experts or opposing political figures presented a better plan or less bad, or less painful euthanasia of the $38,000,000,000,000.00 elephant in the room?
So if the Supreme Court derails the plan, then what?
Is a 50-60 Trillion dollar deficit the legacy you want for future generations. Dying is easy, living is hard. Why make our grandchildren suffer? Because we hate Trump?
John Yankovich says
Amen! John Yankovich
John Yankovich says
If tariffs are bad why are other countries placing them on American goods? There is nothing wrong with reciprocal tariffs! The US has 5% of worlds population but consumes 70% of world products. Foreign companies want to sell here. As far as a tax burden on consumers, if you don’t buy excessive priced imported goods, you don’t pay the “tax”!
FlaglerLive says
The US does not consume 70 percent of the world’s products, but closer to around 20 to 25 percent, and that figure is inflated by the disproportionate amount of energy the US consumes, relative to its 4 percent population share of the world’s total. Please do a quick fact check before posting so we don’t have to. Thank you.
Pogo says
@ed, et al.
Don’t despair, with healthy living — even prayer may help, uh well, maybe not — your sight, hearing, and not least of all, your sense of smell could return. I live in hope.
BillC says
The U.S. TRADE deficit for 2025 is projected to be around $713.6 billion through August, with estimates suggesting it could reach approximately $1.1 trillion by the end of the year.
The U.S. BUDGET deficit is 1.78 trillion.
—Bureau of Economic Analysis
“$38,000,000,000,000.00” is 38 TRILLION dollars. Badly inaccurate, but even more wild is the crystal ball figure of a “50-60 Trillion dollar deficit” . Making BS up is easy, accuracy is hard.
Ed P says
Bill C
Federal budget deficit reached 38 trillion in October.
I was not referring to any trade deficit except that it was the impetus for a reciprocal tariff.
You don’t seem to be able to help but to misrepresent my posts every time you respond.
Doesn’t everyone know what the 38 trillion deficit is?
BillC says
EdP to quote directly from your original comment “The reality of the 38 billion dollar budget deficit and the unwillingness for congress to stop spending, requires this economic growth spurt.” Note you said 38 BILLION. Trade deficit figure was mentioned as an attempt at clarification since you left the $38,000,000,000,000.00 figure unattributed and confusing since you mentioned 38 billion earlier.
Also, regarding your “50-60 Trillion dollar deficit” statement, where are all YOUR credentialed facts?
Laurel says
What do you want from a guy who is going to reduce your medicine costs by 600%?
He loves the poorly educated.
He loves himself.
This we know.
Tired of it says
The magas think that China and the other countries are paying the tariffs. They have no idea that Americans are paying the tariffs and the price for electing megalomaniac .
Ed P says
Tired of it.
Did you read the article?
Only a small portion of actual tariff costs have been passed along to consumers to date.
Laurel says
“To date.”
Laurel says
We were not in an “emergency” situation. We didn’t need a reboot, into the unknown, of our economy.
Republicans has always touted “free trade.” That has changed with Trump. Republicans don’t like taxes. That, too, has changed with Trump, as tariffs are a consumption tax on our citizens. We now have a President who uses tariffs as a personal vengeance tool.
Other countries now see us as unstable, and unreliable. Some are turning away, and dropping the dollar in favor of other currencies. That is not a good scenario for us.
This article, explaining tariffs, is a good one. I tend to believe economists over politicians when it comes to the economy, just as I tend to listen to the American Medical Association over a man who has no medical background, and I tend to believe in Four Star Generals over a boy who wants to play Army.
Sherry says
Right On Laurel!
Of course our citizens will end up paying for trump’s tariffs one way or the other. Those who very foolishly think that other countries or large corporation will simply pay those “taxes” without passing them down to the consumer have really bought trump’s BS hook, line, and sinker.
Remember trump is a lying “Con Man”, NOT an economist! Why he’s not even a good businessman. He is a “convicted felon” for over 30 counts of “FRAUD”!
Born with a “golden” spoon in his mouth, donald trump received more than $413 million in today’s dollars from his father, Fred Trump. Those millions came to him, over the course of his lifetime, largely through a combination of gifts, loans, and an inheritance. This contradicts his public claims of starting his business with only a “very small loan” of $1 million.
Sure, trump ha accumulated wealth, but he most certainly hasn’t done so completely legally or ethically! Remember, trump’s companies also file for bankruptcy 6 times. He certainly has a well earned reputation for NOT PAYING his employees and debtors!
In the back of my mind, I’m wondering if he is currently scheming to somehow walk away from his time in the “White House” with all or part of those “tariff trillions”. With the “completely corrupt” Maga apparatus he has put in place, he could well get away with spiriting away billions. Does anyone in their right minds think his lack of transparency is just a fluke? Really?
Laurel says
Trump is giving vodka another go around! Hilarious!
Laurel says
I should have said Trump is giving vodka another shot! LOL!
Ed P says
Sherry,
Really? Are you serious? Stealing the tariff duties?
Incredulous can’t describe your conspiracy theory.
Where are all your credentialed facts you endlessly demand from opposing views when they comment?
Ps. Just to remind everyone, all 34 charges hinged on 1 (one) event, an NDA with Stephanie Clifford, aka Stormy Daniels.
But yes, he was convicted of all 34 counts.
Laurel says
Minimalist
dump trump hes just like hitler says
Tariffs are a good thing if you ask any of the bible thumpin’ trumpin’s. From which the promise of money to pay them all off – they think they’re doing so well. Meanwhile trump’s family is making millions and billions and millions off the fabric of ‘merica, and our national debt grows to record size. Didnt dump’s casinos spend money like that in AC and go under? Hmm.. And meanwhile in grocery stores, prices on everything are up – but a gold-plated ball room needed host the yearly ‘remember epstein not Kimmel’ white house ball – costing twice projected cost – keeps pace. Bible thumpin’ trumpin’s are told to blame biden for all of this, and they do like good little sheeps. That’s pretty much ‘merica right now in a nutshell – and I had to pay 100% more for that nutshell compared to the last time I needed one.
Ed P says
Bill C
I stand corrected. Deficit is not the debt.
Thanks for pointing out that the tariffs may in fact eliminate the annual deficit and allow for reduction of the Federal Debt.
BillC says
No problem Ed P. For ease of understanding, the 38 Trillion is most commonly referred to as the National Debt.
“As of late 2025, most of the U.S. national debt is held by domestic investors, including private individuals, corporations, and the Federal Reserve, which together account for about 80% of the total debt. Foreign entities hold the remaining 20%, with Japan and China being the largest foreign holders.”
— Federal Reserve Bank of St. Louis
Ed P says
Bill C,
There are multiple sources who project a Federal Debt at or beyond 50Trillion by 2035, without drastic changes.
CBO, CRFB, Peter G. Foundation, Penn Wharton, Yale, and others.
Instead of hope and prayer that a technological revolution (fusion to reduce energy costs or Ai super efficiency) or even a new reality of a GDP over 3%, (would only make debt manageable), I believe the adults in congress and at all political levels have to stop spending to reduce the Federal Debt.
DOGE, tariffs, GDP growth, reduction of Federal payrolls, and improved government efficiency will all help and provide the needed time for adjustments and social change. By themselves, they cannot save enough money to prevent a future potential financial collapse. It’s a spending problem.
In reality, every social program simply can’t be funded unlimited and allowed to grow, never to sunset or ever producing meaningful transitions or results. Change is uncomfortable.
The current levels of spending will end in an unsustainable situation at some point if spending is not reduced. It will take more than 50/60 trillion but there will be a ceiling.
It’s that simple, but not impossible.
Ray W. says
In 2007, the federal deficit was $160 billion, but the Great Recession was in its infancy.
After Congress passed some $2.7 trillion in unfunded stimulus spending by the end of 2008, including the $770 billion TARP Act, the federal government began pumping the funds into the economy.
By 2009, the federal deficit had jumped to $1.42 trillion.
Many of the more gullibly stupid among us solely blamed the Obama administration for the deficit, forgetting that President Bush had signed into law what Congress had passed. These were spending bills, ordered by the legislature. The goal was to save a crumbling economy.
In 2010, the federal deficit was $1.28 trillion. But the deficit began to drop. By 2015, the deficit was down to $440 billion.
Four years later, the federal deficit was back up to $980 billion, for a variety of reasons.
Then, the pandemic hit in 2020 and our federal legislature voted into law $2.9 trillion in unfunded stimulus spending. President Trump signed the bills into law and began spending the money. The 2020 deficit jumped to $3.13 trillion as much of the stimulus money quickly went into the demand side of the economy. Inflation began to tick up.
The 2021 deficit was $2.77 as President Biden continued to spend the money that Congress had ordered him to spend.
Just as with Obama, the more gullibly stupid among us solely blamed Biden for spending in 2021 the rest of the stimulus money that President Trump had signed into law.
Inflation began to accelerate through the year.
A new Congress ordered Biden to spend another $3 trillion in unfunded stimulus money. Most of the new stimulus money was to be injected over time into the supply side of the economy, with much of that going to new factories to add to the American manufacturing sector. Many of these factories are opening now. Some of that $3 trillion has yet to be spent.
Inflation continued to rise because of our unbalanced economy, peaking in 2022.
The 2022 deficit was $1.38 trillion. In 2023? $1.7 trillion. 2024? $1.83 trillion. 2025? $1.78 trillion.
All of the deficit figures come from the US Treasury Department.
Make of this what you will.
Me?
In times of economic upheaval, one Congressional tool is to pass spending bills to stimulate a crashing economy. These are orders from Congress to spend the money that they passed.
It is clear that the Trump administration spent trillions in 2020 in an effort to save a crashing economy.
My position is that the pandemic crashed our economy in 2020. Congress, Trump, and Biden spent trillions in their effort to save the economy, but it came at a cost. Inflation soared. The Fed had its own hand in that crisis. The federal debt soared, too.
The more gullibly stupid among us solely blame Biden. They are wrong, as they so often are.
To me, every economic reaction to the pandemic, no matter the source, came with its own cost and we are nowhere near complete economic recovery, but the American economy was well on its way to recovery by the end of the Biden administration.
It’s too early to predict the amount of the 2026 federal deficit, as there exists only two months of data.
BillC says
There’s a difference between the federal deficit and the National debt. Agreed: the federal deficit is approaching 2 trillion. The national debt is 38 trillion. Big difference between the two and a lot of confusion about mistaking one for the other.
BillC says
ps Ed P has conflated the two into the “Federal Debt”.