By Simon Lockard
Introduction:
Under the current executive administration of the United States, tariffs will likely play a prominent role in the country’s global economic enforcement and international relations. This paper will discuss what tariffs are, the effects of tariffs on the United States and global economies, the history of tariffs in the United States, and how the current United States’s use of tariffs could affect domestic and international relations.
What are Tariffs?
A tariff is a tax levied on imported goods and services.[1] Tariffs create trade barriers that raise prices, reduce available goods and services for a country’s businesses and consumers, and create an economic burden on foreign exporters. Tariffs are collected by the government imposing the tariff when the exporter brings foreign goods into the country. Until the mid-nineteenth century, tariffs were the primary source of federal revenue for the United States and other foreign nations.[2] Currently, tariffs are typically used selectively to protect specific domestic industries, advance foreign policy goals, and as leverage in trade negotiations with other countries.[3] A country can impose tariffs on trading partners who engage in abusive labor practices to promote more ethical labor practices and shield their workers from unfair competition caused by subpar labor standards.[4] Additionally, tariffs can be used to promote or enforce higher climate standards in countries with little to no environmental policy.
Economic Effects of Imposing Tariffs
As discussed above, tariffs are taxes placed on imported goods, which increase the price of those imported goods to encourage consumers to buy domestic goods instead. Tariffs can have positive effects on the economy. Tariffs protect domestic businesses, generate jobs, revitalize industries, and boost production. Additionally, tariffs can generate revenue for the government and penalize countries that engage in unfair business practices.[5]
However, tariffs have negative economic impacts as well. Empirical evidence shows that tariffs raise prices for consumers and create a deadweight loss in the economy, which can reduce overall GDP and hurt domestic business. Tax Foundation’s Erica York has stated that the Trump and Biden era tariffs cost 142,000 full-time jobs in the United States.[6] Additionally, empirical evidence shows that consumers were charged 3 billion dollars a month for the full burden of tariffs imposed by the United States in 2018 and 2019.[7] Further, tariffs have been shown to hurt domestic businesses because those businesses rely on imported components to make their goods, and tariffed nations are negatively affected when tariffed nations fight back with retaliatory tariffs.[8] Additionally, tariffs’ effects are usually regressive, which means that they tend to burden lower-income individuals more.[9] Tariffs are a consumption tax on goods. Therefore, the people who get harmed the most have to spend most of their income on essential goods to live. The wealthier someone is, the lower the percentage of their income is needed to purchase vital consumer goods, making price increases less detrimental to their daily life. Finally, tariffs create economic inefficiency because they penalize certain products by restricting their supply and making them more expensive while simultaneously supporting other products, creating inefficient production and consumption patterns and deadweight loss in the economy.[10] Deadweight loss refers to the loss of economic efficiency that occurs when the economy is not operating at equilibrium.[11] Deadweight loss caused by tariffs occurs when an excess loss or burden exceeds the value collected by the tariff or tax.[12] Excess loss occurs when countries penalize efficient and cheaper foreign products to prop up more inefficient and costly domestic products. This suppresses mutually beneficial trade and allocates resources to inefficient outlets.[13] Further, a recent empirical study has shown that the deadweight loss that occurred due to Trump’s 2018 tariffs and subsequent trade wars is entirely passed onto the consumer, with none of the loss being taken on by the exporter or distributor.[14] Therefore, any future tariffs imposed by the United States or other countries in retaliation will likely result in a cost borne entirely by the U.S. consumer, shown through higher prices or lower-quality products.
U.S. History of Tariffs
Article One, Section 8 of the United States Constitution states “the Congress shall have the power to lay and collect Taxes, Duties, Imposts, and Excises, ..but all Duties, Imposts, and Excises shall be uniform through the United States.”[15] This delegates the power to tariff to Congress.[16] However, Congress has subsequently partially delegated this power to issue tariffs to the president.[17] One of the first acts signed into law by the first Congress was the Tariff Act of 1789. The act served two purposes: (1) to promote trade, and (2) to raise revenue for the federal government. Alexander Hamilton was a strong proponent of the legislation. Hamilton viewed the act as playing a key role in protecting the burgeoning American manufacturing sector from foreign competition and promoting industrial growth over a long term.[18]
The significance of the tariff as a revenue creator for the federal government started to decline in the early 1900s with the adoption of a federal income tax. Additionally, tariffs started to fall out of favor after the failure of the Smoot-Hawley Act. The Smoot-Hawley Act of 1930 raised import tariffs primarily on Europe, which started a trade war and caused economic devastation in Europe, which historians believe contributed to the rise of fascism in Europe and the Second World War. After World War II, the United States reduced its use of tariffs and adopted a free trade approach. In 1947, under the primary direction of the United States and the United Kingdom, the General Agreement on Tariffs and Trade (GATT) was created.[19] This agreement regulated trade among 153 countries from 1947 to 1994.[20] The GATT was subsequently replaced by the creation of the World Trade Organization (WTO) in 1995, which incorporated GATT principles and provided a more concrete framework for enforcing trade policy and agreements.[21] The WTO is an international institution with 164 members responsible for regulating trade and tariffs between nations.[22] It seeks to ensure fair and equitable negotiation between its members through conducting negotiations, lower trade barriers, and help countries settle trade disputes.[23] The WTO helps manage tariffs by requiring that its members keep their tariffs below an agreed-upon level, which can vary depending on the specific country.[24] Currently, the credibility of the WTO has come under fire due to the United States’s choice to ignore the parameters created by the WTO and unilaterally impose tariffs.[25] Both presidents, Donald Trump and Joe Biden, imposed tariffs that were in contrast with the WTO guidelines. Most of these tariffs targeted the United States’s trade relationship with China.[26] The use of tariffs, specifically by the executive branch, in recent years shows a shift by the United States in their use of tariffs in foreign policy relations.
Current Landscape of Tariff Use in the United States and Abroad
Under the current administration, the importance of tariffs for international relations and revenue creation for the United States has been at its highest since before World War II.[27] Historically, the United States, including during Trump’s first term, has typically reserved tariffs for trade disputes. However, Trump is now adopting an expansive approach, treating tariffs as a universal tool to address any foreign policy dispute.[28]
On February 1, 2025, President Trump’s administration issued three executive orders that directed the United States to impose tariffs on imports from Mexico, Canada, and China.[29] The tariffs imposed were a 25 percent tax on imports from Canada and Mexico and a 10 percent tax on imports from China.[30] As discussed above, imposing tariffs is Congress’s legal and primary responsibility. However, President Trump used the International Emergency Economic Power Act (IEEPA) as the legal basis for imposing the tariffs.[31] President Trump is the first president to use the IEEPA to initiate tariffs.[32] Presidents have used the IEEPA in the past to impose sanctions on foreign adversaries.[33] The president must declare a national emergency based on a threat to U.S. national security, foreign policy, or economy before using the law to impose tariffs.[34] President Trump has asserted that the national emergency that gives him the authority to sue the law to impose tariffs is fentanyl smuggling and irregular migration. The use of the IEEPA varies from other laws that delegate tariff authority to the president because the IEEPA does not require the president to jump through any procedural loopholes first to impose tariffs. During Trump’s first administration, President Trump imposed tariffs using sections 201, 232, and 301 of the Trade Act of 1974, which allowed the president to impose tariffs only after conducting the required investigations and reports.[35] In contrast, the president’s current use of the IEEPA allows him to bypass the procedural processes and impose tariffs more immediately.
Trump tariffs will likely greatly impact the economies of the world and the United States. Immediately after Trump announced his tariff plan, Canada, Mexico, and China announced they would retaliate against the United States. Kimberly Clausing, a senior fellow at the Peterson Institute for International Economics, believes that Trump’s tariffs and the retaliation they cause will result in a tax increase of more than $1,200 per year on American consumers, substantial consumer costs, and a multitude of other economic harms which including reduced economic growth, a shrinking export sector, and supply chain disruption.[36] Additionally, she states that the tariffs are the largest tax increase on the American people since 1993 and that they will significantly worsen the situation for the bottom sixty percent of American consumers.[37]
In response to the global and domestic backlash of the initial executive orders, President Trump decided on February 4, 2025, to delay the start date of the 25 percent Mexican and Canadian tariffs until March 4, 2025.[38] On March 4, Trump finally levied 25 percent tariffs against Mexico, Canada, and China.[39] In response to the tariffs, China levied retaliatory tariffs on over 22 billion U.S. goods, mainly targeting agricultural imports such as chicken, soy, and beef. This is detrimental to United States farming businesses that rely heavily on Chinese consumption of soybean, corn, wheat, and meat exports.[40] Additionally, Canada has levied reciprocal tariffs on over 100 billion in goods, and Mexico has threatened reciprocal tariffs, which has made Trump delay tariffs on Mexican and Canadian goods for a second time, which is set to expire on April 2, 2025.[41] Finally, on April 2, President Trump unveiled his administration’s most comprehensive and far-reaching tariff package.[42] This new tariff proposal included a blanket ten percent tariff on all imported goods, which came into effect on April 5, 2024, and individual reciprocal tariffs on fifty-seven countries, including China, Japan, and the EU, which went into effect on April 9, 2025.[43] Trump subsequently paused the reciprocal tariffs on all countries besides China for ninety days but kept the blanket ten percent tariff in place.[44] President Trump has imposed a 145 percent tariff on Chinese goods but has discussed carveouts for electronics like computers and cell phones.[45]
The current uncertainty over tariff policy has created financial instability in the United States, which has contributed to a sharp decline in the United States’s stock market and could potentially steer the United States into a recession.[46] Trump’s April 2, 2025, tariff proposal triggered the worst two-day loss in the United States stock market history, with the market value decreasing by over 6.6 trillion dollars.[47] According to Bloomberg, the three days following Trump’s announcement wiped out $10 trillion in global equity value.[48] Additionally, economists believe that Trump’s tariff policy will cause stagflation, harm U.S. consumers, and push the United States into a prolonged recession.[49] Stagflation occurs when a country has weak economic growth and high inflation levels.[50] Stagflation is extremely hard to combat because trying to solve one problem usually worsens the other. For instance, if the Federal Reserve raised interest rates to fight inflation, it would worsen economic growth and create or prolong a recession. Analysts at JPMorgan have estimated that a recession is 60 percent likely, and Goldman Sachs has increased their prediction to be between 40 and 50 percent.[51]
Additionally, Trump’s tariffs are projected to create a global trade war, which will trigger recessions in other countries. JPMorgan has already projected that Mexico and Canada are expected to enter recessions and that the likelihood of a recession has increased in Europe and Asia.[52] Further, JPMorgan believes the global recession risk is now at 40 percent. Former U.S. Treasury Secretary Janet Yellen stated that Trump’s tariffs are the “worst self-inflicted wound” she has ever seen an administration impose on a well-functioning economy.[53] Additionally, Robert Gulotty, a professor at the University of Chicago, stated that Trump’s tariff policy has abandoned “decades of diplomatic effort to negotiate treaties, build trust and develop a system to address (global) economic frictions.”[54]
Finally, in addition to the short-term consequences of a possible recession and economic turmoil, Trump’s tariff policy could negatively affect the United States’ long-term global economic position. Tariffs could cause a long-term economic downturn in the United States by making investment in the U.S. unattractive and encouraging international actors to form new trade agreements that exclude the United States and decrease our global economic leverage.[55]
Conclusion
Our current administration’s use of tariffs is a stark shift away from the United States’s modern trade policy and has potential negative effects on the entire global economy, specifically the American consumer. The Trump administration’s current use of tariffs is a broad overreach of executive authority. The Trump Administration has unilaterally enacted tariff policies that have had short and long-term negative effects on domestic and global economies. The administration’s actions are a complete reversal of the global economic and trade policy the United States has exhibited during the 20th and 21st centuries and have resulted in our country holding the rest of the world hostage with the threat of creating a global recession. Trump’s actions are completely unconstitutional, and both Congress and the Supreme Court should clarify that Congress has the authority to enact large-scale tariffs and not the presidency of the United States. Congress is more responsive to the electorate’s needs, and if people disagree with their economic policy, they can be voted out of office in two years. Currently, the American people and the entire world are stuck, for the next four years, with a president whose economic policy is to manufacture a global recession and hurt the lives of countless people to support the completely untenable goal of bringing large-scale manufacturing back to the United States. While tariffs are a tool that can be used in precise situations to reprimand bad-behaving trade partners and support specific domestic industries, large-scale blanket tariffs will only cause economic harm and suppress domestic and global economic growth.
[1] Congressional Research Services, U.S. Tariff Policy, Congress.gov (Jan. 31, 2025), https://crsreports.congress.gov/product/pdf/IF/IF11030.
[2] Id.
[3] Id.
[4] Josh Bivens, Tariffs—Everything you need to know but was afraid to ask, Economic Policy Institute (Feb. 10, 2025), https://www.epi.org/publication/tariffs-everything-you-need-to-know-but-were-afraid-to-ask/#:~:text=First%2C%20many%20U.S.%20exports%20are,U.S.%20exports%20in%20global%20markets.
[5] Kim Campo, Tariffs Explained, New York Institute of Technology (Mar. 10, 2025), https://www.nyit.edu/news/articles/tariffs-explained/.
[6] Iain Murray, Tariffs Don’t Protect Jobs, Competitive Enterprise Institute (July 25, 2024), https://cei.org/opeds_articles/tariffs-dont-protect-jobs/.
[7] Erica York, Separating Tariff Facts from Tariff Fictions, Cato Institute (Apr. 16, 2024) https://www.cato.org/publications/separating-tariff-facts-tariff-fictions.
[8] Id.
[9] Id.
[10] Blerina Uruçi, Trump’s tariffs are a wild card for the global economy, T. Rowe Price (Feb. 2025), https://www.troweprice.com/institutional/nz/en/insights/articles/2025/q1/trumps-tariffs-are-a-wild-card-for-the-global-economy-apac.html#:~:text=It%20reduces%20overall%20income%20in,Overall%2C%20the%20economy%20loses.
[11] Deadweight Loss,CFI, https://corporatefinanceinstitute.com/resources/economics/deadweight-loss/.
[12] Erica York, Separating Tariff Facts from Tariff Fiction, Cato Institute (Apr. 16, 2024), https://www.cato.org/publications/separating-tariff-facts-tariff-fictions
[13] International Trade, CFI, https://corporatefinanceinstitute.com/resources/economics/international-trade/#:~:text=Examples%20of%20International%20Trade%20Policies&text=Tariffs%20generate%20deadweight%20losses%20because,are%20wasted%20on%20inefficient%20production.
[14] Mary Amiti, The Impact of the 2018 Trade War on U.S. Prices and Welfare, National Bureau of Economic Research, https://www.nber.org/system/files/working_papers/w25672/w25672.pdf
[15] U.S. Const. art. 1, § 8.
[16] Congressional Research Services, U.S. Tariff Policy, Congress.gov (Jan. 31, 2025), https://crsreports.congress.gov/product/pdf/IF/IF11030.
[17] Id.
[18] Tyler Halloran, A Brief History of Tariffs in the United States and the Dangers of Their Use Today, Fordham Journal of Corporate and Financial Law (Mar. 17, 2019),https://news.law.fordham.edu/jcfl/2019/03/17/a-brief-history-of-tariffs-in-the-united-states-and-the-dangers-of-their-use-today/.
[19] From the GATT to the WTO: A Brief Overview, Georgetown Law Library, https://guides.ll.georgetown.edu/c.php?g=363556&p=4108235#:~:text=The%20GATT%20survived%20the%20ITO’s,for%20implementing%20and%20extending%20them.
[20] Id.
[21] Id.
[22] Andy Clark, What Is the World Trade Organization, Council on Foreign Relations (Apr. 25, 2023), https://education.cfr.org/learn/reading/what-world-trade-organization.
[23] Id.
[24] Anshu Siripurapu, What are Tariffs, Council on Foreign Relations (Apr. 1, 2025, 3:36 PM EST),https://www.cfr.org/backgrounder/what-are-tariffs#:~:text=WTO%20members%20are%20supposed%20to,permitted%20to%20have%20higher%20tariffs.).
[25] Id.
[26] Asma Khalid, Biden Kept Trump’s Tariffs on Chinese Imports. This is Who Pays the Price, NPR (June 27, 2023, 5:00 AM ET), https://www.npr.org/2023/06/27/1184027892/china-tariffs-biden-trump.
[27] Emily Lambert, How will Trump’s tariffs affect the U.S. economy?, UChicago News (Jan. 31, 2025), https://news.uchicago.edu/story/what-effect-will-trumps-tariffs-have-us-economy.
[28]David E Bond, Gregory Spak, Ian Saccomanno, & Samuel Scoles, President Trump Imposes 25% Tariffs on Canada and Mexico, and 10% Tariffs on China, White and Case LLP (Feb. 2, 2025),https://www.whitecase.com/insight-alert/president-trump-imposes-25-tariffs-canada-and-mexico-and-10-tariffs-china.
[29]Id.
[30] Id.
[31] Id.
[32]Id.
[33]Id.
[34] Id.
[35] Chase D. Kaniecki, Catherine Johnson, & Alexi T. Stocker, Trump Tariffs: What’s Happened, What’s Potentially Coming, and How to Prepare, Cleary Gottlieb LLP (Jan. 30. 2025), https://www.clearytradewatch.com/2025/01/trump-tariffs-whats-happened-whats-potentially-coming-and-how-to-prepare/.
[36] Id.
[37] Id.
[38] Domenico Montanaro, The Short History of Trumps Tariff Chaos, NPR (Mar. 7, 2025, 5:00 AM ET), https://www.npr.org/2025/03/07/nx-s1-5320159/trump-week-tariffs-mexico-canada-doge.
[39] Id.
[40] Id.
[41] Id.
[42] Accenture, Navigating the New Tariff Landscape and its Economic Impact, Accenture (Apr. 10, 2025), https://www.accenture.com/us-en/insights/strategy/navigating-new-tariff-landscape-economic-impact.
[43] Id.
[44] Id.
[45] Lori LaRocca, Trumps Tariffs on China will Soon Bring ‘Irreversible’ Damage to Many American Businesses, CNBC (Apr. 13, 2025, 11:52 AM EDT), https://www.cnbc.com/2025/04/12/trump-tariffs-on-china-mean-irreversible-damage-for-most-businesses.html.
[46] Greg McKenna, Stock market implodes as Trump tariffs and recession nightmares spook investors, Fortune (Mar. 10, 2025, 7:09 PM EDT), https://fortune.com/2025/03/10/stock-market-implodes-trump-tariffs-recession-nightmares-spook-investors/.
[47] Alia Chughtai & Mohammed Haddad, Eight Charts that Reveal the Economic Impact of Trumps Tariffs, Aljazeera (Apr. 9, 2025), https://www.aljazeera.com/economy/2025/4/9/eight-charts-that-reveal-the-economic-impact-of-trumps-tariffs.
[48] Id.
[49] Megan Leonhardt, Get Ready for Stagflation. Trump’s Tariffs Mean Less Growth, More Inflation, Barron’s (Apr. 3, 2025, 9:39 AM EDT), https://www.barrons.com/articles/trump-tariffs-stagflation-economy-41b20ad5.
[50] Id.
[51] Id.
[52] J.P. Morgan, U.S. Tariffs: What’s the Impact on Global Trade and the Economy, J.P. Morgan (Apr. 11, 2025), https://www.jpmorgan.com/insights/global-research/current-events/us-tariffs#section-header#1.
[53] Leonie Chao-Fong, Tom Ambrose, Graeme Wearden, & Kate Lamb, US Markets Close with Steep Losses as Trumps Tariffs Branded ‘Worst Self-Inflicted Wound’ by a Successful Economy, The Guardian (Apr. 10, 2025, 4:16 PM EDT), https://www.theguardian.com/business/live/2025/apr/10/trump-tariffs-us-china-eu-trade-war-markets-latest-news-updates.
[54] Tori Lee, How do Tariffs work, and who will They Impact?, UChicago News (Apr. 2, 2025), https://news.uchicago.edu/story/how-do-tariffs-work-and-who-will-they-impact-uchicago-experts-explain.
[55] Richard Nephew, Implications of the Trump Administration’s Tariff Announcements on U.S. Economic Statecraft, Columbia School of International and Public Affairs (Apr. 8, 2025), https://www.energypolicy.columbia.edu/implications-of-the-trump-administrations-tariff-announcement-on-us-economic-statecraft/.
