How Do the New Trump Tariffs Work?

In the lead-up to the 2024 elections, one of President Donald Trump’s many stated goals was to levy tariffs on numerous nations. He posited these taxes as “the greatest thing ever invented,” claiming they could create more jobs, lower inflation, and provide relief to the national debt.

The first part of the promise—actually instituting the tariffs—has been honored. Within just a couple months of moving back into 1600 Pennsylvania Ave., Trump has officially levied tariffs not just on rival China, but also Mexico and Canada.

Whether the means actually result in Trump’s stated ends remains to be seen. But what we know right now is this: The United States is now embroiled in a trade war with its three biggest trade partners, including the only two nations that share a common land border.

And virtually every American will feel the impact, one way or another.

How, you ask? Well, today I’m going to answer that question … and many others. Read on with me as I explain what tariffs are, how they work, what they’re used to accomplish, what the newest Trump tariffs cover, and how increased taxes on what we buy won’t be the only fallout of this fresh trade war.

What Is a Tariff?

A tariff is a specific type of tax that a government imposes on goods and/or services imported from other countries. 

Tariffs usually are charged as a percentage of the cost that domestic purchasers pay to buy those goods or services from a foreign seller. For instance, the most recent Trump tariffs include a 25% levy on most goods imported from Canada and Mexico, and a 20% tax on all goods imported from China.

I’ll dive a little deeper into each country’s specific tariff situation momentarily, including updates on any changes since the tariffs were first announced. But first, I’ll run you through how tariffs broadly affect consumers and how they’re collected.

Who Pays Tariffs?

One of the biggest misconceptions about these taxes is that other countries pay the price of tariffs the U.S. levies on other countries. It’s simply not true. 

The domestic businesses that import goods (retailers, for instance) pay this tax directly to the U.S. government. However, businesses don’t eat the whole cost. Far from it. They typically raise prices to account for much if not all of the import cost—meaning you, the consumer, end up indirectly paying this tax.

Indeed, shortly after the tariffs were made official, retailers such as Best Buy (BBY) and Target (TGT) began communicating that Trump’s tax hikes could filter into retail prices “within days.“

And if this round of Trump tariffs are similar to the tariffs levied during the president’s first term, consumers might be shouldering the lion’s share of these costs:

“Historically, economists have found that foreign firms absorbed some of the burden of tariffs by lowering their prices, resulting in a combination of foreign businesses and domestic firms and consumers sharing the burden of tariffs,” says independent, nonpartisan think tank The Tax Foundation. “In contrast to past studies, however, recent studies have found the Trump tariffs were passed almost entirely through to US firms or final consumers.”

What does that look like, practically? Looking only at the 25% “blanket” tariffs imposed on Canadian and Mexican imports, the Urban-Brookings Tax Policy Center (TPC)—another independent, nonpartisan think tank—projected that Americans’ average after-tax incomes would fall by $930 (just under 1%) in 2026. 

“The lowest-income 20 percent of households would be worse off by an average of $170, while the wealthiest quintile [would be worse off] by an average of $3,280 in that year,” the TPC adds.

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An Example of How Tariffs Work

Here’s a hypothetical example to demonstrate how tariffs work:

• A U.S. grocer normally pays a Canadian supplier $20 per jug of maple syrup, then sells it to consumers for $22.
• The U.S. levies a 25% tariff on all goods imported from Canada, meaning that jug of maple syrup is subject to a 25% tax.
• The next time the U.S. grocer imports maple syrup, it still pays the Canadian supplier $20 per jug. However, when that maple syrup reaches an American port of entry, U.S. Customs and Border Protection agents also collect the 25% tariff (so, an additional $5 per bottle) as that syrup clears customs.
• The grocer, now paying $25 per jug of maple syrup, decides to pass 80% of the tariff costs (so, $4) on to the consumer. It absorbs 20%, which cuts into its profit margins.
• The consumer now pays $26 for the jug of maple syrup—an 18% increase from the $22 they used to pay.

Related: 8 Ways Higher Tariffs May Lead to Higher Costs for Americans

Trump’s 2025 Tariffs, By Country

Next up is a country-by-country look at the current Trump tariff situation.

Just note, before reading on, that these tariffs are … well, fluid. The landscape has shifted a lot in only a couple of months. Trump originally announced tariffs on China, Canada and Mexico in early February, only to delay instituting tariffs on the latter two until March … and then, after just a couple of days, he delayed the Mexican tariffs another month.

In fact, in the time that it took to write this, several aspects of the tariffs on Canadian and Mexican imports changed significantly.

All of this is to say: There are a lot of moving parts, and we’ll do our best to update this story when and if the White House changes its approach on the tariffs listed here.

1. Canada

On March 3, 2025, President Trump instituted a 25% blanket tariff on virtually all imports from Canada, the United States’ largest trading partner. 

At the time, the tariff had one exception: “energy resources” (such as oil and natural gas), which will face a lesser 10% tax.

Among the most noteworthy Canadian imports covered by the tariff:

• Lumber: Roughly 30% of softwood lumber used in the U.S. is imported from Canada. This could significantly increase the cost of building new homes.
• Crude oil: A little more than 60% of the oil that the U.S. imports comes from Canada, so Americans could see more pain at the pump.
• Machinery: Machinery is actually one of our top imports from Canada, at about $30 billion annually.
• A wide variety of foods: Beef, pork, poultry, cheese, milk, butter, fruits, vegetables, wheat, barley, oats—these and many more products could become more expensive. All told, the U.S. imports roughly $35 billion in food and live animals from Canada each year. And included in this group is one product that deserves its own mention …
• Maple syrup: “But we can get syrup from Vermont!” Speaking from personal experience, the Green Mountain State’s syrup is fantastic. However, tariffs will impact not just Canadian syrup imports, but also maple syrup manufacturing equipment used by American maple producers. And that equipment is largely made in Canada, too.

But pretty quickly, on March 5, Trump relented on another category, announcing a one-month pause on tariffs targeting automobiles and auto parts imported from Canada and Mexico. The concession followed months’ worth of dire warnings that the tariffs, which target nations critical to America’s automotive supply chain, would cripple the U.S. auto industry.

“My projection is that we will see about a 1.5 million to 2 million unit annual reduction in sales in the U.S. for each year the tariffs are in effect,” Sam Abuelsamid, Vice President of Market Research at Telemetry, told the Detroit Free Press. “This will, in turn, lead to the likely loss of hundreds of thousands of jobs across the automotive ecosystem and into the wider economy that depends on people in the industry spending their wages. If the tariffs persist for any length of time, I expect it to lead to a recession within a year and an increase in unemployment.”

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2. Mexico

On March 3, 2025, President Trump instituted a 25% blanket tariff on virtually all imports from Mexico, our second-largest trading partner.

On March 6, however, he announced another reprieve on Mexican tariffs through April 2.

Should those tariffs be enacted in April, here are the most noteworthy Mexican imports that would be hit hard by taxes:

• Produce: America imports a massive amount of its produce: 60% of its fresh fruit, and 40% of its fresh vegetables. And the lion’s share of that action comes from Mexico, which has been America’s top supplier of produce for decades … by a country mile. From 1995 to 2023, we imported nearly $250 billion worth of produce from Mexico. The second-closest nation? Canada, at roughly a fifth of that!
• Booze: The U.S. imported a wild $5.2 billion worth of tequila last year. But perhaps more noteworthy is the beer market—Mexico represents more than 80% of all beer imported to the U.S., including the new best-selling beer brand in America, Modelo Especial.
• Computers: Mexico is a significant manufacturing partner of electronics and computer partners, and as a result, the U.S. imported some $43 billion in computers from Mexico last year.
• Crude oil: While the U.S. isn’t as reliant on Mexican crude oil, we still import quite a bit—roughly 10% of our crude oil imports come from our southern neighbor.
• Medical instruments: Mexico is Latin America’s top exporter of medical devices. And the U.S. is one of Mexico’s top customers, importing nearly $22 billion worth of devices and equipment (ranging from surgical gloves to pacemakers) in 2023.
• Avocados: Whether they’re on their own, in sushi, in guacamole, or served with condensed milk (thanks, Philippines!), or briefly sponsoring a bowl game, avocados are one of Mexico’s greatest exports. But they’re about to get significantly more expensive—and there’s little getting around this tariff. The USDA says roughly 90% of all avocados consumed in the United States are imported from Mexico.

Like with Canada, Mexico was also given a one-month reprieve from tariffs on auto-related goods. That’s substantial, albeit temporary, relief—for us! In 2024 alone, we imported $79 billion worth of cars and light trucks from Mexico, and another $81 billion in auto parts.

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3. China

On Feb. 1, 2025, President Trump instituted a 10% blanket tariff on all imports from China, our third-largest trading partner. Then on March 3, Trump doubled those tariffs to 20%.

Among the most noteworthy Chinese imports covered by the tariff:

• Electronics: Anyone reading this has likely owned a cellphone, computer, or other electronic device that was made in China and exported to the U.S. Last year, we brought in $64 billion worth of these goods from China, and those goods are about to be 20% more expensive to import than they were at the start of 2025.
• Clothing: The U.S. imported roughly $108 billion worth of textiles and apparel last year, and China accounted for almost a quarter of that. Imports of Chinese-made footwear alone came to nearly $8 billion.
• Toys, games and sporting goods: We also imported a massive $32 billion worth of toys, games, and sporting goods from China. Indeed, according to The Toy Association, an industry group, America sources almost 80% of its toys from China—and that the U.S. can expect to pay 15% to 20% more for toys come the 2025 back-to-school shopping season.
• Auto parts: The U.S. imported $18 billion in auto parts from China last year, and those parts are subject to the tariffs. That’s because China is not included in the temporary pause with Canada and Mexico.

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4. European Union

While the 27-nation European Union hasn’t yet been slapped with tariffs in 2025, it could just be a matter of time.

In late February, Trump threatened to impose 25% tariffs on the bloc because—and apologies, but this is a direct quote—it was “formed to screw the United States.” While he claimed at the time that details would be released soon, those details have yet to materialize.

While individually, no European Union country holds a candle to Canada, Mexico, or China in terms of trade with the U.S., as a whole, the EU represents our greatest sum of exports and imports, as well as our greatest trade imbalance (at -$235 billion in 2024).

Among our largest imports from the EU? Medicinal and pharmaceutical products, automobiles, petroleum oils, and machinery.

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Retaliatory Tariffs

Tariffs can significantly damage demand for a nation’s goods and services. So, as you can imagine, countries often don’t take these kinds of measures sitting down. Quite the opposite: They frequently clap back with tariffs of their own.

The impact of other nations’ tariffs is different on our end. Many U.S. consumers might never notice that a country has suddenly levied a tax on some of our imports.

But American businesses will.

Here’s a very quick look at retaliatory tariffs issued by Canada, Mexico, and China:

• Canada: In March, announced 25% tariffs on $30 billion in goods originating from the U.S., including live poultry, meat, pork, milk, cream, eggs, numerous fruits and vegetables, wine, beer, spirits, tobacco, various toiletries, tires, wood products, apparel, tools, and more.
• Mexico: In March, announced that the country will respond to America’s tariffs with 25% tariffs on U.S. goods. Details have not yet been released.
• China: In February, announced 10%-15% tariffs on crude oil, liquefied natural gas, petroleum, coal, farm machinery, motor homes, trucks, and more. In March, announced 10%-15% tariffs on chicken, wheat, corn, cotton, sorghum, soybeans, beef, seafood, fruit, vegetables, dairy products, and more.

Note: The examples given here represent just some, but certainly not all, of the categories affected by foreign tariffs.

It’s also worth noting that, in response to Trump’s first-term tariffs on steel and aluminum imports, the European Union applied a 25% tariff on American whiskeys—and after suspending it in 2021—but appear set to reimpose tariffs at a higher 50% rate if the steel and aluminum taxes aren’t lifted.

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Tariffs Are Hardly New

While the country-specific tariffs have gotten the most media play, they’re not the only taxes Trump has levied. In February, for instance, he reinstated a 25% tariff on steel imports (originally instituted during his first term) and increased tariffs on aluminum imports from 10% to 25%.

Before that, in September 2024, then-President Joe Biden raised existing tariffs on a host of goods made in China, including a 100% tariff on electric vehicles (EVs), 25% on lithium-ion EV batteries, and 50% on semiconductors and solar cells.

The Obama administration had imposed 35% tariffs on tires imported from China. George W. Bush enacted tariffs on a variety of steel products. Heck, John F. Kennedy placed tariffs on imported steel.

In short: Tariffs themselves are nothing out of the norm.

But Trump’s tariffs are noteworthy for two reasons: 1.) They’ve been levied on whole countries, not just targeted materials, and 2.) They’ve been levied, in the cases of Canada and Mexico, on allies and trade partners—indeed, Trump himself brokered a replacement of the North American Free Trade Agreement (the United States-Mexico-Canada Agreement, or USMCA) during his first term.

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Why Do Countries Impose Tariffs?

Tariffs can be put into place to accomplish one or more of several goals:

• Protecting domestic industries: As I outlined above, tariffs make imported goods more expensive. That in turn might encourage consumers to buy locally produced alternatives.
• Political/economic leverage: Governments can also use tariffs to apply pressure to foreign nations, whether that’s to secure better trade conditions or to ensure compliance with other policies. For instance, Trump has cited curbing the fentanyl trade among the primary drivers of his tariffs.
• Retaliation against unfair trade practices: Tariffs also can be used to try to dissuade a foreign nation from engaging in unfair trade practices such as dumping goods, or in retaliation for poor trade conditions or even tariffs.
• Improve national security: Section 232 of the Trade Expansion Act of 1962 allows the president to raise tariffs on imports believed to threaten national security. For instance, tariffs could be used to ensure the U.S. doesn’t rely (too heavily, or at all) on trading with foreign countries for critical military products.
• Raising government revenues: Given that tariffs are simply taxes, they can be used to fill the government’s coffers.

While all of these are fair enough aims, that doesn’t mean tariffs always meet the moment. Tariffs can backfire, sometimes spectacularly. 

For instance, tariffs might increase domestic consumption of certain goods or services in the short term, but ultimately result in lower baseline demand as some consumers simply find other alternatives. Tariffs are inflationary by their very nature. They can cut into the profits of companies that try to shield their customers from the full brunt. And using tariffs liberally against trade partners can damage those relationships over the long term, driving those countries to look elsewhere for less combative partners and even compelling them to enact retaliatory tariffs in response.

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Who Decides Whether the U.S. Will Charge Tariffs?

It’s a complicated question, and one that really isn’t relevant to most people’s financial realities, which is why I saved it for last.

The Congressional Research Service—a governmental public policy research institute that actually operates in the Library of Congress—has an excellent overview. But in short:

The Constitution explicitly gives the power of outlining and collecting tariffs to Congress. However, over the years, Congress has shared increasing amounts of that power and responsibility off to the president.  Indeed, the last tariff act in which Congress set rates was the Tariff Act of 1930 (aka the Smoot-Hawley Tariff).

Most of the regulations that give America’s president authority over taxes do so under specific conditions. For instance, to institute the blanket tariffs on Canada and Mexico, Trump is invoking the International Emergency Economic Powers Act (IEEPA)—a national security law meant “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.”

However, taking this “emergency” route comes with a number of headaches. For one, the U.S. faces logistical challenges in collecting tariffs on “de minimis” imports ($800 or less), such as shipments from sites like Temu that are made directly to consumers. Trump’s original order, in February, authorized the collection of tariffs on de minimis imports, but it quickly became clear U.S. systems weren’t capable of handling de minimis taxes, so they’ve been indefinitely suspended until “adequate systems are in place to fully and expediently process and collect tariff revenue.”