WASHINGTON — President Donald Trump has followed through on his promises regarding tariffs. On Wednesday, he announced a blanket 10% tax on imports from all nations, along with higher tariffs on numerous countries that have trade surpluses with the U.S.
With this action, Trump is delivering on a major campaign promise by increasing U.S. taxes on foreign goods. The aim is to reduce the disparity with tariffs that the White House claims other nations unfairly impose on American products.
Trump’s increased tariffs would impact foreign entities that sell more to the U.S. than they purchase. However, economists generally disagree with Trump’s support for tariffs, viewing them as taxes on importers that are typically transferred to consumers. There is a possibility that these reciprocal tariffs could encourage other countries to negotiate and decrease their own import taxes.
The Associated Press solicited questions regarding reciprocal tariffs. Here are some of those questions, along with our responses:
Do U.S.-collected tariffs go into the General Revenue Fund? Can Trump withdraw money from that fund without oversight?
Tariffs are taxes applied to imports, collected by the Customs and Border Protection agency when foreign goods enter the U.S. The funds, which amounted to approximately $80 billion last year, are directed to the U.S. Treasury to help cover federal government expenses. Congress has the authority to determine how these funds are allocated.
Trump, with considerable backing from Republican legislators who control both the U.S. Senate and House of Representatives, intends to utilize the increased tariff revenue to fund tax cuts. Analysts suggest these cuts would disproportionately benefit wealthier individuals. The specific goal is to extend tax cuts implemented during Trump’s initial term, which are largely scheduled to expire at the close of 2025. The Tax Foundation, a nonpartisan think tank based in Washington, estimates that extending Trump’s tax cuts would from 2025 to 2034.
Trump seeks to offset reduced tax collections through higher tariffs. The Tax Policy Center, another think tank, has stated that extending the 2017 tax cuts would provide ongoing tax relief to Americans across all income levels, noting that “higher-income households would receive a larger benefit.”
How soon will prices rise as a result of the tariff policy?
The timing of price increases will depend on the reactions of businesses both in the U.S. and abroad. However, consumers could begin to see overall price increases within one to two months after the tariffs are implemented. Prices for certain products, such as produce from Mexico, could increase more rapidly once the tariffs take effect.
Some U.S. retailers and importers might absorb a portion of the tariff costs, and overseas exporters may lower their prices to mitigate the additional duties. However, for many businesses, the tariffs announced by Trump on Wednesday—such as the 20% tariff on imports from Europe—will be too substantial to absorb independently.
Companies might also exploit the tariffs as a justification for raising prices. Following Trump’s imposition of duties on washing machines in 2018, studies later revealed that retailers , despite the absence of new duties on dryers.
A crucial question in the coming months is whether a similar situation will recur. Economists are concerned that consumers, having recently experienced the most significant inflationary period in four decades, may be more accepting of rising prices compared to pre-pandemic levels.
Nevertheless, there are also indications that Americans, discouraged by the increased cost of living, are less willing to accept price increases and may simply reduce their spending. This could deter businesses from significantly raising prices.
What is the limit of the executive branch’s power to implement tariffs? Does Congress not play any role?
The U.S. Constitution vests the authority to set tariffs in Congress. However, over time, Congress has to the president through various legislative acts. These laws outline the specific conditions under which the White House can impose tariffs, typically limited to instances where imports pose a threat to national security or significantly harm a particular industry.
Historically, presidents generally implemented tariffs only after conducting public hearings to assess whether certain imports met these criteria. Trump adhered to these procedures when imposing tariffs during his first term.
However, in his second term, Trump has sought to invoke emergency powers outlined in a 1977 law to impose tariffs in a more impromptu manner. For instance, Trump has asserted that the influx of fentanyl from Canada and Mexico constitutes a national emergency, using this as a justification to impose 25% duties on goods from both countries.
Congress has the power to revoke a president’s declaration of emergency. Senator Tim Kaine, a Democrat representing Virginia, has proposed such a measure regarding Canada. While this legislation could pass the Senate, it is likely to fail in the House. Other bills in Congress aimed at curtailing the president’s authority to set tariffs also face significant obstacles to passage.
What tariffs are other countries charging on U.S. goods?
Generally, U.S. tariffs are lower compared to those imposed by other nations. The average U.S. tariff, weighted to account for actual traded goods, stands at only 2.2%, in contrast to the European Union’s 2.7%, China’s 3%, and India’s 12%, .
Other countries also tend to provide greater protection to their farmers through higher tariffs than the U.S. For instance, the U.S. trade-weighted tariff on agricultural goods is 4%, compared to the E.U.’s 8.4%, Japan’s 12.6%, China’s 13.1%, and India’s 65%. (It’s important to note that the WTO figures do not include Trump’s recent surge of import taxes or tariffs between countries that have established their own free trade agreements, such as the U.S.-Mexico-Canada Agreement, which allows many goods to cross North American borders without duties.)
Nonetheless, the Trump administration has employed its own calculations to arrive at significantly higher tariffs that they claim other economies impose on the U.S. For example, the White House stated on Wednesday that the European Union’s effective tariffs on the U.S. equate to 39%, substantially higher than the WTO’s figures. They claim that China’s tariffs equal 67%.
Previous U.S. administrations agreed to the tariffs that Trump now deems unjust. These tariffs were the outcome of lengthy negotiations from 1986 to 1994—known as the Uruguay Round—culminating in a trade agreement signed by 123 countries, which has served as the foundation of the global trading system for nearly four decades.