Trump hits China with 125% tariffs. What are tariffs and who pays for them?
China and the European Union unveiled stiff retaliation levies Wednesday aimed at countering President Donald Trump's latest tariff blitz, while Trump, unfazed, urged global companies to set up shop in the U.S.
The Chinese Finance Ministry announced 84% tariffs on U.S. goods starting Thursday, up from the 34% previously announced, the finance ministry said Wednesday.
On Wednesday − in the latest twist of the tariff saga that has roiled financial markets − President Trump said he was authorizing a 90-day pause in reciprocal fees while raising China's levy to 125%.
Trump previously rolled out a flurry of reciprocal levies on trading partners, including one sky-high fee: a tax on Chinese goods of 104%. This was after implementing a sweeping tariffs plan that imposed 10% levies on almost all imports. Targeted U.S. tariffs of up to 50% on more than 50 nations went into effect Wednesday at 12:01 a.m. before being paused.
Here is what to understand about tariffs.
What are tariffs?
A tariff is a tax that a government imposes on goods imported from other countries. It is a type of trade regulation used to protect or generate revenue.
Tariffs are not like income or sales taxes. Instead, they are levies — additional fees — placed on products imported to the country.
Monica Morlacco, assistant professor of economics at the USC Dornsife College of Letters, Arts and Sciences, explain its functions.
"Tariffs are typically imposed for protection or revenue purposes," she said. "A protective tariff increases the price of imported goods relative to domestic goods, encouraging consumers to buy from local producers, who are thus “protected” from foreign competition. A revenue tariff, on the other hand, is mainly used to generate money for the government."
Who pays the tariffs on imported goods?
Some think the foreign companies that make the goods pay the tariffs, but the cost of a tariff is typically paid by the importer of the goods. When a tariff is imposed, it increases the cost of importing a product into a country.
The importer may absorb the higher cost or pass it on to consumers through higher prices. This means that while the importer pays the initial bill for the tariff, the financial burden often shifts to businesses and consumers in the form of increased prices.
For example, if the U.S. government wants to protect American car manufacturers from foreign competition, it may impose a 10 percent tariff on imported cars from other countries. If a car that's manufactured in Japan costs $20,000, an importer must pay an extra $2,000 in tax. The total cost of the imported car would increase to $22,000, which may be passed down to the consumer.
According to the Tax Policy Center, higher prices of goods in the U.S. will lead to fewer consumers buying goods.
"In the short run, higher prices for imported goods will reduce consumption of those goods," they explained. "But in the longer term, the decline in competition from foreign products makes domestic firms less efficient. And less competition will result in higher prices, not just for those goods subject to the tariff but for competing goods that are not — such as those made domestically. In the case of Trump’s tariffs on China, that means US consumers will pay somewhat higher prices."
So even though it doesn’t feel like a direct tax because it’s not added on to an individual purchase, buyers are the ones covering the extra cost in the price of the item.
What does China import from the US? See top goods
- Soybeans
- Crude petroleum
- Natural gas
- Pork and beef
- Automobiles
- Wine
- Fruits
- Nuts
What does the US import from China? See top goods
- Steel and aluminum
- Solar panels
- Washing machines
- Consumer electronics (e.g., smartphones, laptops)
- Toys
- Apparel and footwear
- Machinery and tech components
How long have tariffs existed in the U.S.?
In the U.S., tariffs have been implemented since 1789, with the first significant tariff law enacted to help finance the newly established government.
Morlacco states that the U.S. has not relied heavily on tariffs for a long time.
"For example, in 1900, tariffs accounted for more than 41% of U.S. government income, but by 2013, that number had fallen to just 2%," she said. "However, many developing nations, like the Bahamas and Ethiopia, still rely on tariffs for a significant portion of their revenue."
Who can authorize the use of tariffs?
In the U.S., Congress holds the authority to establish tariffs. However, certain laws permit the president to impose tariffs, especially in situations related to national security or economic emergencies.
-Paste BN Network contributed to this report.
This story has been updated to include new information.