The early part of President Donald Trump’s second term has been heavily influenced by his tariff policies. He announced imposing a 25 percent tariff on imports from neighboring countries Canada and Mexico before briefly postponing and lowering them. Trump has been tougher on China, starting with a 10 percent tariff in February, which he increased to 20 percent recently. He also hinted at introducing high tariffs on most global imports by April. These actions have led to significant market volatility and confusion regarding which tariffs are in place at any moment.

Beyond the immediate effects, there’s broader confusion about the nature of tariffs and their economic impact. According to Luisa Blanco, an economist at Pepperdine University, the consensus among economists is quite straightforward: “We understand that tariffs are highly inefficient and detrimental to consumers,” she states.

Historically, the U.S. and other countries have applied tariffs up to 20 percent to protect local industries, though this practice has declined as global free trade has expanded. The U.S. maintains minor tariffs on certain items like passenger cars, exempting nations under free-trade agreements, aligning with practices in countries like Japan and the European Union.

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During his first presidential term from 2017 to 2021, Trump placed tariffs on solar panels mainly produced in China, and on certain Chinese industries such as medical and aerospace. His successor, President Joe Biden, from 2021 to January 2025, maintained many of these policies and expanded tariffs to other Chinese products like electric vehicles and medical devices. Trump’s approach often favored using much higher tariff rates as more of a geopolitical strategy than an economic one.

Scientific American discussed with Blanco the underlying science of tariffs and how these financial measures affect everyday life for people.

Understanding Tariffs

Economists view trade ideally as each country producing goods it can manufacture most efficiently. These countries use what they need and sell any excess to others that are less efficient producers. This trade then funds the import of goods that cannot be produced locally as effectively.

This ideal scenario, which benefits all participating nations by offering a broader range of goods than they could produce independently, is what free-trade agreements like the United States–Mexico-Canada Agreement aim to achieve. This agreement, which came into effect in July 2020, succeeded the older NAFTA.

In a free-market environment, the interaction between buyers and sellers determines the prices of goods through continuous, indirect bargaining. Some imports may be more expensive than local products if customers perceive them as superior (like Italian olive oil). Conversely, items like T-shirts from China may be cheaper than their U.S. counterparts due to lower production costs abroad.

A tariff disrupts this market efficiency by adding a tax on imports, whether from a specific country or more broadly.

The Economic Impact of Tariffs

While tariffs generate revenue for the government, the total income from tariffs is minimal compared to other sources, such as individual income taxes. Traditionally, tariffs have aimed to support domestic production by making imported goods more expensive, thus allowing local manufacturers to increase their prices without losing customers.

However, the primary burden of tariffs falls on consumers, who face higher prices either from domestic products or more expensive imports. According to Blanco, this situation leads to a ‘deadweight loss,’ where the economic disadvantage to consumers outweighs any gains for producers.

The real-world market is complex, involving goods that cross multiple borders and are part of intricate supply chains, which can become costly when tariffs are applied. “There will definitely be significant distortions in the supply chain,” Blanco remarks.

The broader implications are substantial. One study projected that a 10 percent tariff on all international products and a 60 percent tariff on Chinese goods could reduce U.S. GDP by nearly $600 billion over four years, with the most severe impacts occurring early on.

Furthermore, targeted countries often respond with their own retaliatory tariffs, potentially leading to a trade war, as seen between the U.S. and China since 2018. These reciprocal tariffs can exacerbate the effects on U.S. consumers and negatively impact American exports despite intentions to protect domestic manufacturers.

Overall, tariffs can lead to slight increases in unemployment and inequality, as shown in a vast study covering 50 years and 151 countries. Blanco is particularly concerned about low-income individuals who face the hardest hit from rising costs. “These tariffs end up being regressive taxes,” she explains. “At the end of the day, we all need to buy groceries.”