Tariffs — An Explainer

What are tariffs?

Tariffs are taxes on imported goods that, when well-targeted and strategically planned, can be a powerful economic tool. They help counter unfair trade practices, serve as negotiation leverage, and generate revenue. When combined with subsidies in a national industrial policy, tariffs can support strategically important industries like electric vehicles, medical equipment, and semiconductors. They can also protect domestic jobs, address trade imbalances, and pressure foreign adversaries. However, broad, poorly planned tariffs can harm the economy, trigger trade wars, and disrupt global stability. Not all tariffs are created equal.

Who pays for tariffs?

Tariffs are collected at US ports when companies bring in products from other countries. Who ends up paying the tariffs depends on several factors, like the bargaining power of the buyer and seller and how willing customers are to pay higher prices. In some cases, foreign suppliers or US importers might absorb part of the cost to stay competitive, cutting into their profits. But research shows that most of the time, especially with large-scale tariffs like the ones President Trump has introduced, businesses pass the extra cost on to consumers. Even American-made products can get more expensive if they rely on imported parts or technology that are subject to tariffs. Yale’s Budget Lab estimates Trump’s new 2025 tariffs will cost the average US household $1,600 to $2,000.

What’s the latest on Trump’s trade war?

As of March 12, 2025: Since taking office, President Trump has threatened, imposed, rolled back, reinstated, and delayed a confusing and chaotic array of tariffs against the United States’ largest trading partners: Canada, Mexico, and China. Last year, US trade with these three nations totaled $2.2 trillion. Except for Canadian energy products subject to a 10% tariff, all goods from Canada and Mexico were taxed at 25% (under pressure, Trump has temporarily paused tariffs on some of these goods). The tariff on Chinese goods was doubled to 20%, adding to pre-existing levies Trump put on China in his first term and Biden added to, raising the average effective tariff rate on China to 33%. While the US considers China an adversary, Canada and Mexico have historically been political and economic allies. As a result, all three economies are deeply intertwined. In 2023, the US and Canada traded nearly $1 trillion in goods and services, supporting 8 million US jobs. Mexico, Canada, and China are also among the top importers of US farm products.

An expanded 25% tariff on all steel and aluminum imports began on March 12. Canada is the largest foreign supplier of steel and aluminum to the US. European Union countries are also impacted. The US is the second largest importer of EU steel, buying about 16% of its volume. The day before, Congressional House Republicans quietly inserted a provision into a procedural bill that removes their ability to roll back or adjust Trump’s tariffs.

Expected April 2, 2025: 25% tariffs on all products imported from Mexico and Canada are set to resume. Trump has also made vague threats to impose tariffs “in the neighborhood of 25%” on European Union nations and auto imports.

Retaliation

Canada responded by announcing an immediate 25% retaliatory levy on about $100 billion worth of US goods. Citizens were also urged to buy Canadian and avoid vacationing in the US, including Maine. Ontario cancelled a $68 million contract with Elon Musk’s Starlink and imposed restrictions on US companies doing business in Ontario. A plan to charge a 25% tax on electricity exports to Minnesota, Michigan, and New York was suspended.
China announced new tariffs of up to 15% on US agricultural products, including seafood, fruit, vegetables, dairy products, chicken, beef, wheat, corn, sorghum, and cotton. It is also tightening restrictions on US companies doing business with China.
European Union announced retaliatory tariffs against $28 billion worth of targeted US products, including whiskey, peanut butter, beef, jeans, and motorcycles.

How will the new tariffs impact the US economy?

While the situation remains fluid and much remains unknown, financial markets and industry leaders are already responding negatively to the uncertainty and shifting sands. In addition to markets plunging and new worries of a looming recession, economists project significant repercussions to come from the Trump administration’s actions.

Increased consumer costs: Higher tariffs on goods from Canada, Mexico, and China will lead to increased prices for everyday products, from clothing and cars to phones and food.
- Gas and energy: Canada is the largest supplier of energy to the US, via crude oil, heating oil, natural gas, and electricity. Nationally, gas prices are projected to rise by 5 to 20 cents per gallon. New England is especially reliant on Canadian energy and will see even higher increases, with gas prices rising 20 to 40 cents per gallon and electricity costing New Englanders an additional $66 million per year.
- Food: Mexico supplies about half of the fresh produce sold in the US, including lettuce, tomatoes, bananas, strawberries, and avocados. Families are likely to see their grocery costs increase by about 3%.
- Cars: Estimates on price increases for automobiles range from $3,000 to $10,000, depending on the make and model. The North American auto industry is highly integrated, with parts and components crossing US borders several times before the vehicle is completely assembled. Because of this, and because cars will also be hit by steel and aluminum tariffs, the impact will be severe and widespread. Price inflation will spread to used cars and car parts as well, as demand for them increases.
- Cellphones, computers, and gaming devices: About three quarters of cellphones, 92% of laptop computers, and 96% of video game consoles could see a 20% price increase.
Increased construction prices: Increased costs for imported Canadian lumber and raw materials will make housing and infrastructure projects more expensive. Prices for building materials are projected to increase as much as 6% this year, and the cost of fixtures could jump up to 20%.
Turmoil and uncertainty for small businesses: While Trump has shown willingness to make temporary concessions to big US corporations, small businesses have been left to face steep and unexpected new costs on their own. Because these products have already been priced for customers, paid for, and shipped, businesses must absorb the full cost of the tariffs in the near term. Quickly reinventing established and specialized supply chains is not always possible. Worse, business owners don’t know which countries will be targeted next.
Economic slowdown: Some economists estimate the tariffs on Canada, Mexico and China could shrink the US economy by 0.3-0.4%. That’s the equivalent of losing $80-$110 billion annually. In just the first quarter of 2025, GDP growth is projected to drop 2.4%. If that pace continues, it would be the worst plunge since the COVID-19 shutdown in early 2020.
Inflationary pressures: As import costs rise, inflation may be pushed higher, potentially prompting the Federal Reserve to keep interest rates elevated. Consumer sentiment reflects that concern, with inflation expectations rising to their highest level in almost 30 years.
Potential job losses: Industries dependent on global supply chains may be forced to cut as many as 223,000 full-time jobs due to higher costs.

How will the new tariffs impact Maine?

Maine’s economy is deeply intertwined with Canada’s. 70% of Maine’s imports come from Canada, and about 48% of Maine exports go to Canada in return. Maine and Canada exchanged over $6 billion in two-way trade in 2024, supporting over 60,000 good-paying jobs. Maine’s economy will be directly impacted in many ways, including:

Higher energy costs: Nearly all of Maine’s heating oil comes from Canada. Heating oil suppliers are already preparing their customers for steep price increases, even for those with fixed price accounts and cap protections. With about 70% of homes dependent on heating oil, Maine is more reliant than any other state. Mainers could see a 10- to 20-cent increase per gallon at the gas pump and a 20- to 30-cent increase per gallon of home heating oil. Electricity rates are also expected to rise. Aroostook and Washington county residents are projected to see a 5% increase on their monthly bill.
Severe strains on the lobster industry: Increased tariffs could cripple the industry’s supply chain, with $200 million at stake. Because a large portion of Maine’s lobster is processed in Cananda, lobster could take a double tariff hit: when it returns from Canadian processing and again if it’s exported to China. Maine lobstermen also rely on Canadian diesel, rope, and buoys. Industry experts warn the combination of tariffs and catches at 15-year lows resulting from warming oceans could put hundreds of out of business.
Higher housing costs: Increased costs for building materials will drive up housing costs, eat into builders’ profit margins, and make it harder for Maine to meet its ambitious goal to build 84,000 new homes in the next five years. Home prices could rise between 5% and 10% on top of prices that have already risen 75% in the last 5 years.
Small businesses like craft brewers will suffer: Most of Maine’s aluminum comes from Canada, and most of the 25% increase on the cost of aluminum cans will be borne by small breweries or passed on to consumers.
Depressed tourism: Canada is calling for its citizens to avoid vacationing in the US as retaliation. In 2023, Canadians accounted for 5% of Maine visitors. They spent more than $450 million in Maine, generating over $800 million in economic impact and $67 million in state and local tax revenue. Even a partial decline would have a serious impact on Maine’s economy.

What was learned from Trump’s last trade war?

During Trump’s first term, his administration waged a trade war primarily against China, but also imposed tariffs on steel, aluminum, and other goods from allies like Canada and the European Union. The Biden administration kept some of the tariffs against China in place, and even increased them on specific goods, including solar cells, electric vehicles and batteries, medical equipment, steel, and aluminum. While Biden’s tariffs were also critiqued by free trade advocates, they were generally considered successful in advancing the policy goals they were crafted to complement: addressing supply chain disruptions and speeding a US industrial transition to clean energy technology that prioritized high-quality jobs. And while Trump’s 2020 free-trade deal with Mexico and Canada is credited with strengthening trade relationships with our neighbors, his ill-defined tariff-fueled trade war was found to be damaging in many ways, including:

Higher prices for consumers: Tariffs on Chinese goods led to increased costs for US companies, which in turn raised prices for American consumers by approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.
Slower economic growth and lost jobs: The tariffs against China are estimated to have slowed economic growth by 0.2% and cost the equivalent of 142,000 jobs. Rural agricultural jobs saw the greatest negative impact.
Farmers and fishermen hit hardest: When China retaliated by slapping steep tariffs on US food products, farmers suffered export losses totaling $27 billion. In Maine, lobster exports to China — the state’s second biggest customer — dropped 84% during the first 11 months of the trade war. Wild blueberry exports dropped nearly 100%. Taxpayers paid $66 billion to bail out farmers, which accounts for nearly all the revenue the trade war generated — and equals the annual cost of the nation’s entire food assistance program (the Supplemental Nutrition Assistance Program, or SNAP).
Harm outweighed benefit of steel and aluminum tariffs: While US steel and aluminum producers saw a $2.8 billion increase in production, industries impacted by higher prices of those materials suffered a $3.4 billion production decrease.
Construction costs surged: Canada provides a third of the lumber used in the US. Tariffs on Canadian softwood added an estimated $9,000 to the cost of constructing a single-family home.
Trade imbalances remained: The trade agreement Trump ultimately made with China in 2020 was supposed to narrow the trade gap and result in China buying $200 billion worth of US goods, including Maine lobster. China never bought any of it.

Did you know…?

Nearly a quarter of oil America consumes per day comes from Canada. About 60% of US crude oil imports are from Canada, and 85% of US electricity imports as well.
The new tariffs lift America’s average tariff from 2.4% to 10.5%, the highest level since the 1940s.
In 2024, China purchased 5% of US farm exports worth an estimated $29 billion. One quarter of the nation’s soybean crop is exported to China.
As a result of Trump’s first trade war, China stopped buying Boeing aircraft. Before the tariffs, China accounted for 25% of Boeing’s sales.
After China slapped steep retaliatory tariffs on US lobster, Canada’s lobster sales to China more than doubled.
Maine is the 3^rd largest seafood exporter in the US. Seafood is our state’s top export, closely followed by transportation equipment.
84% of Maine exporters are small businesses.
International trade supports 1 in 5 (170,300) Maine jobs. Foreign-owned companies employ 37,300 Maine workers.