How these trading tools work

President Donald Trump has long been a tariff fan, and in his first month at the White House he wasted no time imposing new and relatively high time on imports from Canada, Mexico and China. .

Trump has suspended tariffs in Canada and Mexico for at least a month, but those countries are negotiating with the US on trade and border security, but a new 10% tariff on China’s imports began on Tuesday .

And given Trump’s history, he could re-execute the tariff threat during his next four years of office.

After CNBC saw a headline gust of winds last week about Trump’s favorite trade negotiation tool, trade expert David, to get answers to questions many Americans may have about tariffs I spoke to Gantz.

Gantz is a Will Clayton Fellow of Trade and International Economics at the Institute of Public Policy at Rice University, and previously served as a US judge in the Administrative Court of the US State Agency and a consultant for the World Bank.

“It’s essentially a tax on imports,” Gantz said. “Taxes are determined by the value of the goods declared by the exporter.”

“For some products, it’s the price per ton, but essentially for all consumer goods, it’s the value of the product,” Gantz said.

“Usually, value is what an independent buyer pays to an independent seller,” he said.

Items subject to customs duties can be goods or other raw materials such as steel. Component products such as car transmission. Completed products such as Mercedes-Benz sedans.

Customs duties are usually a percentage of the value of imported goods. For a 2.5% customs duty, the obligation to be paid is $2.50 per $100 product value.

“Under law, importers are liable to pay customs duties,” Gantz said.

For example, US auto companies pay customs duties on power transmissions imported from Korea that are used to assemble SUVs.

“But” – and it’s big, but “under normal circumstances, importers will move it to the boundaries of wholesalers, distributors and ultimately consumers,” Gantz said.

In other words, the importer pays the duties first, but another company, and ultimately the end-user, or consumer, will keep some or all of its costs in their footsteps.

Gantz used an example of crude oil drilled in Alberta, Canada, and was shipped via a pipeline to the US, where it was refined into gasoline or diesel fuel.

Under Trump’s currently suspended tariffs, energy products imported from Canada are subject to 10% collection. If Alberta crude is sold for $60 per barrel, the additional tariff is $6 per barrel.

Gasoline’s profit margins are “very low,” so consumers will “be given the entire $6 cost” at gas station pumps such as BP, Gantz said.

“BP doesn’t absorb some parts, like an additional $6,” he said.

In addition to gasoline, consumers are most likely to see price increases that fully reflect tariff rates on perishable foods such as low-profitable fruits and vegetables, Gantz said.

But for high profitable importers, “if they have relatively high markups, such as branded footwear, they may be able to absorb much of the additional cost without giving them to consumers,” he said. .

“Taxes will be collected by the Customs and Border Patrol, a division of the Department of Homeland Security,” Gantz said.

But “it’s paid directly into an account that goes directly to the Treasury Department,” he said.

The Treasury Department, which previously monitored the CPB, is responsible for collecting revenue from the US government.

Not so much – there were a lot in the past, but relatively speaking.

In 2024, the United States collected just $77 billion in tariffs, according to a report by Congressional Research Services.

“In the past 70 years, tariffs have never considered more than 2% of the total federal revenue,” the CRS report said.

When the United States became a country in the late 18th century, tariffs were “the main source of government revenue, as there was no (permanent) income tax until 1913,” Gantz said.

“For over 100 years, they have been a major source of revenue for the US government,” he said.

Duties during that period could be higher than 40% for imported goods.

The tariffs are “very easy to collect,” Gantz said. “Import taxes are collected at the border. If you don’t pay the tax, you won’t get your good.”

“It has been used for many years to protect new industries, especially in New England.”

High tariffs means that products imported to the US have a competitive disadvantage against products sourced in the US

The tariffs of US protectionists remain like the steel industry where imported steel is subject to taxation.

After being imposed during the Civil War to pay the costs of the conflict before it was abolished in 1872, tariffs fell sharply after the reestablishment of federal income tax in 1913, and the importance of the US federal income It has become a low source of

In 1930, Congress passed the Smoot-Hawley Customs Act and raised a wide range of import taxes to protect US businesses during the onset of Great Fear Presion. The law is widely seen as leading to retaliatory tariffs by other countries and exacerbating the economic misery of depression.

“If we raise tariffs, other countries will raise tariffs,” Gantz said.

He said after Trump would impose a 25% tariff on imports from Canada, the country “has come up with a very detailed list of around $150 billion imports that they are planning to increase import taxes.” I stated. Products from states where lawmakers supported US tariffs.

China said Tuesday that it would charge an additional 15% tariff on coal and liquefied natural gas imported from the US, as well as 10% duties on US crude oil, agricultural machinery and some vehicles.

However, Gantz said maintaining tariffs could benefit our consumers.

“If there is (relatively) low tariffs on goods from China, you could save your family $2,000 or $3,000 a year, from televisions to Barbie dolls,” Gantz said.

And savings from low tariffs were “very important for low-income workers because they don’t have much money,” he said.

In his most recent inauguration address, Trump praised former President William McKinley, who served in the White House from 1897 until his assassination in 1901. McKinley defended McKinley’s tariffs in 1890 and raised import taxes sharply. .

“President McKinley has enriched our country so much through tariffs and talent,” Trump said in his speech.

That claim may be a bit hyperbolic.

Douglas Irwin, a Dartmouth University economics professor who studied McKinley’s tariffs, recently told the Washington Post “it’s not like drawing a completely inaccurate picture (of Trump).

“But I think he tends to exaggerate the role of tariffs as something that produces all this prosperity,” Irwin said. Irwin pointed out that tariffs were already high before McKinley helped them back.

Gantz said the reason Trump recently cited because of his immigration and the flow of deadly opioid fentanyl in Mexico, Canada and China – is not a common basis for tariffs.

“But they weren’t the only reason,” Gantz said.

“For years, Trump has been unhappy with the trade deficits we’ve run alongside Canada and Mexico,” he said. “And he also talked about how to move Canadian and Mexican businesses to the US.”

Trump also views tariffs as a source of income “mainly making it easier for the wealthy people to cut taxes,” Gantz said. “That’s the theory.”

“He loves them. He thinks they are the solution to everything.”