By Shannon Najmabadi · The Washington Post (c) 2025
President Donald Trump on Saturday announced the United States will slap tariffs on imports from Canada, Mexico and China, initiating a trade war with the United States’ three largest trading partners. The levies have prompted concerns of higher prices for consumers purchasing cars, refrigerators, produce and other items that the United States typically sources from abroad. Trump himself said Sunday there may be some economic pain – but insisted it will be worth it.
Whether and when the levies take effect remains unclear. While Trump ordered a 25 percent tariff on goods from Canada and Mexico, the Mexican tariffs will be delayed one month, the Trump administration said Monday, after the presidents of both countries talked and Mexico promised to send more troops to the U.S.-Mexican border. Trump and Canadian Prime Minister Justin Trudeau were scheduled to speak later Monday.
The administration also plans to impose a 10 percent levy on Chinese goods, which Trump has warned will be followed by much steeper tariffs.
So what are tariffs, and why are they so controversial?
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How do tariffs work?
Tariffs are like a sales tax, applied at the border, to the importer of a certain good. Often, this importer is aU.S.-based wholesaler or manufacturer.
“If a person in the United States buys something from Mexico for a dollar and the tariff is 25 percent, then they pay the Mexican $1 and they send 25 cents to the U.S. government,” said Lawrence Christiano, an economics professor at Northwestern University.
There are a number of reasons the government would want to impose tariffs.
First, these levies can raise public revenue. In the example above, this would be the 25 cents paid to import a dollar’s worth of Mexican products. In fact, tariffs were historically used to raise revenue in the United States before the country had an income tax.
“It was much easier to count stuff coming into the country, like how much tea is being unloaded on the ship, than to figure out how much a farmer grew and sold to another farmer when there weren’t banks,”said Jason Furman, an economic policy professor at Harvard University, who served as President Barack Obama’s economic adviser.
Second, tariffs can theoretically incentivize domestic production and protect certain industries from being undercut by foreign competitors. If a company doesn’t want to pay the tariff to import from Mexico, they may look around the United States to see where else they can get those same products.
In some cases, tariffs are imposed to counter perceived or real instances of unfair competition, said Brett House, an economics professor at Columbia University’s business school. This might be “where foreign suppliers are dumping goods below the cost of production on local markets.”
That said, there are workarounds. The importer might go directly to a third country to import the same goods. Or Mexico, in this instance, might reroute its goods through another country where tariffs don’t apply and then on to the United States.
Such a recourse could be illegal – for example, if documents are falsified to say something was made elsewhere – said Thomas Pugel, emeritus professor of economics at New York University. Or it can be legal – shipping components and “then doing enough transformation in that third country that it legally is, legitimately is, a product of that third country,” Pugel said.
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Why does Trump want to impose tariffs?
Trump has cited both of these arguments – tax revenue and boosting domestic production – when arguing for tariffs. But they can also be used as a bargaining chip to extract a promise or policy outcome from another country.
Trump has framed this round of tariffs as a response to the flow of migrants and drugs across the nation’s borders. He has denied that he’s using the levies to get concessions but has also said his threats have produced quick results. Last week, Colombia agreed to accept deportation flights after Trump said the United States would impose sanctions and tariffs on the country; Monday’s agreement on a trade-war pause with Mexico is another example.
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Who pays for tariffs on imports?
In the short term, importers pay for the cost of tariffs.Exporters who want to remain competitive in the market could lower their own prices. But that doesn’t necessarily offset what importers pay; in the 2018-19 U.S.-China trade conflict, for example, export prices didn’t fall enough to overcome the added costs for importers, said Felix Tintelnot, an associate economic professor at Duke University, citing recent research.
This means that in the longer term, the costs added by tariffs are often passed on through the supply chain to consumers. In some cases, this takes time. Businesses can be reluctant to increase prices if they believe consumers will interpret it as price-gouging, Christiano said.
But expectations matter, and there has been so much recent publicity about Trump’s proposed tariffs that any cost increases could trickle down to consumers right away, Christiano said. “Everybody knows the U.S. government just raised the cost of buying this stuff from Mexico or Canada.”
Tariffs can have other long-term repercussions, such as triggering retaliatory tariffs from affected countries. On Saturday, Trudeau announced Canadian retaliatory tariffs of 25 percent on $106 billion worth of U.S. imports. Mexico’s president had also said the country would push back before she agreed to the pause Monday.
Furthermore, tariffs can degrade foreign relationships or disrupt supply chains that are heavily integrated across borders; the United States has a free-trade agreement with Canada and Mexico, passed under the previous Trump administration.
One example of that is the American auto industry, House said. “Some parts of the supply chains and those manufacturing processes go back and forth across the border multiple times before they result in a finished good,” meaning 25 percent tariffs could be imposed multiple times on cars produced by General Motors,Ford and Stellantis, but not cars imported from Korea and Japan.
For those reasons, markets are highly sensitive to the ramifications of tariffs, as seen by the slump in U.S. stocks early Monday before the deal with the Mexican president allayed fears.
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How long could it take for prices to rise?
Consumers could see the price of nondurable goods, like fruits and vegetables coming from Mexico, increase more quickly than that of durable goods, Tintelnot said.
That’s because importers of durable goods – who may have stockpiled inventory to prepare for the possibility of tariffs – can absorb the effect of tariffs in the short term by using their stockpile. When tariffs were raised on washing machines in 2018, for example, it took nearly two months for those higher prices to be reflected in stores.