Tariffs — An Explainer

Updated April 14, 2025

What are tariffs?

Tariffs are taxes on imported goods. When targeted and strategically planned, they can 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 and semiconductors. They can also protect domestic jobs, address trade imbalances, and pressure foreign adversaries. But not all tariffs are created equal. Broad, poorly planned tariffs can harm the economy, trigger trade wars, and disrupt global stability.

Who pays for tariffs?

Tariffs are charged at U.S. ports when goods are imported. While sellers or importers may absorb some costs, research shows most tariffs are passed on to consumers. Even American-made products can get pricier if they use imported parts. Yale’s Budget Lab estimates Trump’s tariff plan will cost the average US household $4,700. That’s effectively a 27% sales tax on US consumers, the highest since 1903.

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

Since taking office, President Trump has threatened, imposed, rolled back, reinstated, and delayed a confusing and chaotic array of tariffs against every nation in the world, including our largest trading partners. Trump claimed emergency powers to enact these tariffs unilaterally by executive order, but his claim of a worldwide “economic emergency” lacks factual support. The US economy was not in crisis before Trump’s trade war began, and global trade imbalances do not meet traditional definitions of a national emergency. Some are warning the upheaval could lead to a global recession. While Congress has the power to roll back or adjust Trump’s tariffs, House Republicans recently removed that ability. New legislation is required to restore it.

Recently imposed and in effect

Canada & Mexico: All products except those that fall under the US-Mexico-Canada free trade agreement are subject to 25% tariffs. That’s about half of imports from Mexico and over 60% from Canada. Energy and potash are subject to 10% tariffs.
China: Between February 1 and March 3, the tariff on Chinese goods was raised 20%. On April 9, Trump’s “reciprocal tariff” of 34% went into effect as well as two additional retaliation penalties, bringing the total of new tariffs to 145%. The World Trade Organization projected US-China trade could decrease as much as 80%. Within days of the higher rate announcement, tariffs on some electronics, including cell phones, computers, and display screens, were temporarily paused.
Aluminum & steel: 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.
Autos: A 25% tariff on all imported autos began on April 3. This includes US autos completed in Mexico and Canada.
Global “baseline” tariff: A 10% tariff was imposed on all trading partners except Canada and Mexico (already subject to previously imposed tariffs) on April 5.

Coming soon

May 2, 2025: A flat 30% tariff (or $25 per item) will be placed on all Chinese goods that go through the postal system, closing a loophole that allowed small packages valued at less than $800 to avoid tariffs.

May 3, 2025: 25% tariffs on all imported auto parts will take effect.

June 1, 2025: The $25 per item tariff placed on all Chinese goods that go through the postal system will be doubled to $50.

July 8, 2025: The 90-day pause on “reciprocal” tariffs” ends. Nearly 60 trade partners were hit with “reciprocal tariffs” ranging from 10% to 50% on April 9 and paused the same day. Using a calculation method derided as “nonsense” by experts, the list even included remote islands inhabited only by penguins. “Reciprocal tariffs” on China remain in effect.

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. Following the enactment of Trump’s tariffs on auto imports, Canada enacted a 25% levy on auto imports from the US that fall outside of the USMCA trade agreement.
China increased tariffs on all US goods to 125% after Trump’s most recent escalation. It also tightened restrictions on US companies doing business with China.

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 just two days following Trump’s tariff plan unveiling, markets plunged dramatically, losing $6 trillion in value. The growing fight between the U.S. and China could cause the world’s economy to shrink by almost 7% over time. All of this volatility will have serious repercussions for American workers, families, and businesses.

Increased consumer costs: Higher tariffs on imported goods will lead to increased prices for everyday products, from clothing and gas to cars and phones.
- Clothing: About 97% of clothing bought in the US is imported. Prices are estimated to rise 64% in the near term and stay 27% higher in the long-run.
- 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.
- Cars: Estimates on price increases for automobiles range from $5,000 to $15,000, 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.
- Food: Food prices will rise 2.8%, including 4% for fresh produce.
- Cellphones, computers, and gaming devices: About three quarters of cellphones, and almost all laptop computers and video game consoles are made in China. The 145% tariff on those goods is temporarily paused.
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. Quickly reinventing established and specialized supply chains is not always possible. Worse, business owners don’t know which countries or products will be targeted next or how long disruptions will last.
Economic slowdown: Economists estimate the full slate of global tariffs could shrink the US economy by 1.1%. That’s the equivalent of losing $170 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, plummeting to the second lowest level on record. The April reading was even lower than what was seen during the Great Recession, with inflation expectations rising to their highest level in 44 years.
Potential job losses: Industries dependent on global supply chains may be forced to cut as many as 740,000 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.
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. The Maine office of tourism is expecting a 25% drop in Canadian tourists this year, and a 9.5% drop in international visitors overall. This significant decline will have a serious impact on Maine’s economy.
Severe strains on the lobster industry: Rollbacks of some tariffs mean that Maine lobster, which is often processed in Canada, is now spared a direct tariff hit when it returns across the border. But other serious threats remain. US lobster is currently subject to 84% retaliatory tariffs from China and may be subject to renewed retaliation from the EU. And if the projected economic downturn prompts people to buy fewer luxury goods, lobster is far less likely to be on the menu. 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.

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…?

The new tariffs lift America’s average tariff from 2.4% to 22.5%, the highest level since 1909.
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 US imported about 8 million cars and light trucks in 2024.
About 17% of the alcohol consumed in the US comes from the EU. The US exports about $4 billion worth of alcohol each year.
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.