What are tariffs and which countries is Trump targeting?
2025-02-03
Category: economic

Donald Trump imposed tariffs on goods from Mexico, Canada and China over the weekend.The US president said tariffs are needed to "protect" Americans from the "major threat of illegal aliens and deadly drugs", including fentanyl. Trump told the BBC that tariffs on EU goods imported into the US could happen "pretty soon" - but suggests a deal "can be worked out" with the UK.He also floated the idea of an additional 10% across-the-board tariff on all goods imported into the US. 
What are tariffs and how do they work?
Tariffs are taxes charged on goods imported from other countries.There are a handful of different types of tariffs including the kind Trump is imposing, which charge a percentage of the product's value - as opposed to tariffs that impose a fixed figure on imports, whatever their value.Charging a percentage is the most common type of tariff.Trump is imposing a 25% tariff on goods shipped from Canada and Mexico. So a product worth $4 will face an additional $1 charge applied to it.Companies that import goods from abroad pay the tariffs to the US government - but economists say these additional costs are usually passed on to the consumer through higher prices.
Why has Trump put tariffs on Canada, Mexico and China? 
The White House announced its plans to impose tariffs of 25% on Mexico, 25% on Canada and 10% on China, on Saturday. The announcement is Trump fulfilling a campaign promise of instituting import duties against some of America's closest trading partners. Trump said implementing tariffs will allow for a boost in US manufacturing. The tariffs will grow the US economy, protect jobs, and raise tax revenue, he argues. Trump says he is using tariffs not just for economic reasons, but also to "combat the scourge of fentanyl", a powerful drug that causes tens of thousands of overdose deaths in the US each year.His administration says chemicals used to make the drug come from China, while Mexican gangs supply it illegally and have fentanyl labs in Canada. Trudeau has said less than 1% of fentanyl entering the US comes from his country.Six things that could get more expensive for Americans after Trump tariffsBooze, oil and orange juice: How Canada could fight Trump tariffsAt the same time Trump is placing economic pressure on these trading partners, he has stated a desire for Canada to join America as the 51st state an idea Canadian Prime Minister Justin Trudeau has firmly rejected.In response to Trump's announcement, Trudeau declared retaliatory 25% tariffs on 155bn Canadian dollars' worth ($106.6bn; £86bn) of US goods on Saturday. "Now is the time to choose products made right here in Canada," Trudeau wrote on social media. "Check the labels. Let's do our part. Wherever we can, choose Canada."Mexico President Claudia Sheinbaum has directed the Secretary of Economy to impose a plan including "tariff and non-tariff measures in defence of Mexico's interests".In a statement, China's foreign ministry said in a statement that it "firmly deplores and opposes this move" and will "take necessary countermeasures"."Trade and tariff wars have no winners," said a spokesperson at China's Washington embassy.Together, China, Mexico and Canada accounted for more than 40% of imports into the US last year.
Which products will be affected?
In Trump's previous time in office, he applied less restrictive tariffs on China.  This time around, the tariffs appear to apply to most categories of goods. There is, however, a carve-out for Canadian energy, which will be tariffed at 10% instead of 25%. Goods from Mexico such as fruit, vegetables, spirits and beer are expected to get more expensive because of the tariffs. Canadian goods such as steel, lumber, grains and potatoes are expected to get pricier. It is expected that the car manufacturing sector could see the brunt of the effects of the tariff. Vehicle parts cross the US, Mexican and Canadian borders multiple times before a vehicle is completely assembled.  The average US car price could increase by $3,000 because of the import taxes, financial analyst TD economics suggested. 
Will the UK and Europe have to pay tariffs?
On Sunday, Trump said tariffs would be imposed on the EU and the UK. The president told the BBC both were acting "out of line", but because the EU was acting worse it could see tariffs "pretty soon". Trump suggested a solution for the UK could be "worked out" as he was "getting along very well" with UK Prime Minister Keir Starmer. The UK's Business Secretary, Jonathan Reynolds, has said that he thinks the UK should be excluded from any tariffs because the US currently exports more products to the UK than it imports from the US."I think we've got an argument to engage with," Reynolds told the BBC.The UK exports pharmaceutical products, cars and scientific instruments to the US. Last year, the US had a trade deficit of $213bn with the EU - which Trump described as "an atrocity".The EU has said it would "respond firmly" to any tariffs. EU foreign policy chief Kaja Kallas said a trade war with the US would mean "the one laughing on the side is China", adding: "We need America, and America needs us as well."US companies Harley Davidson, which manufactures motorcycles, and whiskey distilleries such as Jack Daniel's have previously faced tariffs from the EU.
Do tariffs cause inflation?
Economists suggest that a portion of the cost of tariffs ends up being paid by consumers. Sellers may raise the price of goods they are importing for consumers. Economic studies of the impacts of tariffs imposed by Trump during his first term in office show the burden was ultimately borne by US consumers. From 2018 to 2023, tariffs on imported washing machines saw the price of laundry equipment rise by 34% in the US, according to official statistics, before falling once the tariffs expired.Some experts suggest that these new tariffs could prompt a wider trade war and exacerbate inflation. Capitol Economics said the annual rate of inflation could increase from 2.9% to as high as 4% because of the newly announced tariffs. If that happens, US inflation would return to the levels seen in mid-2023. 