During the recent electoral campaign in the United States, former president and Republican candidate Donald Trump has made tariffs a central part of his economic plan.
Trump argues that imposing higher tariffs on foreign products will boost the domestic manufacturing industry and create jobs in the country. His proposals would raise tariffs to levels not seen in generations. However, many economists have warned about the risks associated with these measures, such as increased costs for American households and businesses, as well as the possibility of triggering global trade tensions. Before analyzing the implications of this policy, let us first understand: what is a tariff?
A tariff is a tax applied to goods when they cross a country's border. Its most immediate effect is to increase the price of those goods in the domestic market, which, in theory, benefits domestically produced goods by making them more competitive against imports.
Although tariffs can be imposed on both imports and exports, export tariffs have almost entirely disappeared in most countries and are now typically reserved for specific strategic circumstances.
Regarding import tariffs, there are two main types based on their purpose: fiscal tariffs, whose primary objective is to generate revenue for the state by applying low rates that encourage high trade volumes and, consequently, greater fiscal income; and protective tariffs, which are designed to increase the cost of foreign products to protect domestic producers from external competition, although they often involve high rates that reduce international trade and the revenue derived from it. These two types can create contradictory effects since maximizing revenue requires low tariffs, while protecting domestic production demands high tariffs.
Among fiscal import tariffs, three main types can be identified. The first is the ad valorem tariff, which consists of a fixed percentage applied to the value of the goods at customs. The second type is the specific tariff, applied to each unit of goods entering the country, regardless of their value. Lastly, there is the combined tariff, a mixed system that applies both a percentage on the value of the goods and a fixed amount per unit.
During his presidential campaign, Donald Trump has introduced an aggressive tariff policy proposal, with a list of measures that could reorganize international trade. Among these, he has proposed the creation of a "universal" tariff of 10% to 20% on most foreign products, as well as specific tariffs of up to 60% or more on goods from China. Trump has even suggested eliminating normal trade relations with China, which would result in an immediate increase in tariffs on imports from the Asian giant, extending measures previously adopted by Joe Biden’s administration, which has also increased tariffs on Chinese products.
Additionally, Trump has promoted the idea of a "reciprocal" tariff, where the United States would match the tariff rates other countries impose on U.S. products. This approach, according to his proposals, would serve to replace taxes like income tax with revenues generated by tariffs. He has also threatened to impose extreme tariffs of 100%, 200%, or even 1,000% on Mexico, arguing that the country should intensify its efforts to curb migration flows and prevent Chinese-origin vehicles from reaching the U.S. through the Mexican border.
The crucial question here is: who ultimately bears the cost of tariffs? A company has three options: pass the cost on to its customers by raising prices, absorb the tariff cost by reducing its profit margins, or negotiate with foreign suppliers to share the burden by paying less for their products. This decision depends on each company's commercial strategy and capacity to adapt its operations.
However, taking into account the significant tariffs Trump imposed on Chinese products during his first term, several studies concluded that most of these costs were ultimately passed on to American consumers.
Not only consumers are significantly affected by tariffs; within the manufacturing sector, these measures create both winners and losers, despite Trump's goal of protecting U.S. industries. Many manufacturers rely on imported parts and materials, and tariffs on these goods increase operating costs for the factories that use them, offsetting any potential benefits derived from tariff protection.
A clear example of this impact is provided by a U.S. government study on Trump's tariffs on steel and aluminum. While these measures increased domestic production of these metals, they also significantly raised costs for factories using them in the production of automobiles, food containers, and appliances. As a result, these industries experienced a decline in production that, in monetary terms, exceeded the gains from increased steel and aluminum production.
What is clear is that if Trump moves forward with his plans, new trade wars are likely to emerge, similar to those that marked his first term. During that time, countries such as the European Union, China, Canada, and others responded with tariffs on emblematic U.S. products such as soybeans, whiskey, orange juice, and motorcycles, leading to a significant drop in American exports. It seems likely that these scenarios could repeat on a larger scale, especially as many foreign governments are already preparing lists of U.S. products that could be targeted in retaliation.
