The president Donald Trump imposed [e depois adiou] this week new rates on products imported from Mexico, Canada e Chinarisking a harmful trade war. The three countries respond for more than a third of the products brought to the USA.
The United States had not seen so many rates for almost 100 years, when the Smoot-Hawley tariff law helped deepen the great depression, historians say.
What are tariffs? How do they work? And who really pays for them? Answers are not always simple or obvious and require understanding how production chains, trade and supplies work.
What are tariffs and how do they work?
A tariff is a government surcharge on products imported from other countries. Understanding rates means understanding how manufacturing, trade, and supply chains work – and how costs increase along the way.
See the case of shoes, for example:
Almost all shoes sold in American stores come from other countries, with imports recently representing over 95% of the market. For the United States, China remains the dominant source, producing more than half of all footwear imports.
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The production process begins in Chinese factories where workers set up tennis.
When the product arrives in a US port, the importing company usually works with a licensed customs dispatcher to deal with US border customs and protection tariff payments. A pair of shoes typical from China was already with a 20%rate. Since taking office, Trump has imposed an additional 20%rate.
Who pays the rates?
Tariffs are paid directly by companies that import goods to a country. For example, the governments of China, Mexico and Canada would not pay any money to the US government under the new Trump rates.
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The cost of tariffs can be passed on depending on how companies and countries react. When Trump imposed tariffs on China during his first term, for example, economic studies found that companies passed on most of the costs of tariffs to US consumers.
More broadly, most trade policy experts agree that the US economy will likely bear the cost of Trump’s additional tariffs. This can happen in many ways:
- To compensate for higher import costs, retailers often increase prices, transferring the charge to consumers. As a result, consumers effectively pay much of the fare.
- American companies and manufacturers who use imported materials also face higher costs, reducing their profit margins unless they pass the cost to their customers.
- Imposition of imports on imports can also increase the value of the US dollar. This pays part of the impact of tariffs, but also makes US exports more expensive and less competitive. As a result, US exporters may suffer.
Tariffs can also affect foreign companies and governments. Foreign manufacturers can sometimes reduce their prices and accept lower profits.
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Alternatively, the target government can institute a tax discount to help compensate for the tariff load. This occurred in China, for example, during the trade war with the United States in 2018.
Another option is for the foreign government to devalue its currency to compensate for the impact of the fare, as China has done before.
What are the targets of Trump’s current tariffs?
On Tuesday, new rates on products imported from Mexico, Canada and China came into force, according to executive orders issued by the Trump administration.
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- All products from China are subject to an additional 20%tariff, as well as pre -existing rates such as Trump imposed on China in its first term.
- All goods imported from Mexico and most Canada goods are subject to 25%rates. These tariffs were originally defined to take effect in early February, but Trump delayed them for a month.
- Canadian energy products will face a 10%rate.
What is Trump trying to achieve?
Trump described the rates as a tool for all purposes. His administration argued that:
- Tariffs about Canada, Mexico and China are a club to force the largest US business partners to repress drugs and migrants to the United States.
- Pending rates on steel, aluminum and copper are a way to protect domestic industries that are important to defense, while cars will support a critical manufacturing base.
- A new “reciprocal” tariff system is a way to prevent the United States from being “stolen” by the rest of the world.
He also states that the rates will impose few, if any, costs to the United States and will collect huge sums of revenue that the government can use to pay tax and spending cuts and even to balance the federal budget.
The Trump administration mixture of justifications for tariffs over Canada and Mexico. Some Trump employees, such as Vice President JD Vance and Trade Secretary Howard Lutnick, said they aimed to stimulate the repression of illicit drugs, specifically to Fentanil.
But Trump also said he wants factories to move from Canada and Mexico to the United States. And in a social media post on Tuesday (4), he said US banks were prevented from doing business in Canada, while Canadian banks “flood the US market.”
Trade experts point out that tariffs cannot simultaneously achieve all objectives expressed by Trump. In fact, many of their goals contradict each other and undermine each other.
For example, if Trump rates encourage companies to make more of their products in the United States, US consumers will buy fewer imported products. As a result, rates would generate less revenue for the government.
“All of these rates are internally inconsistent with each other,” said Chad Bown, senior member of the Peterson International Economy Institute, a Washington’s Think Tank. “So what is the true priority? Because you can’t let all these things happen at the same time. ”
How did other countries react?
Moments after Trump’s fares came into force, China’s Ministry of Finance imposed 15% tariffs on chicken, wheat, corn and cotton imports from the United States and 10% tariffs on imports from other agricultural products. Canada imposed 25% rates on US $ 20.5 billion in goods.
“This is a time to retaliate tightly and demonstrate that a fight with Canada will not have winners,” said Canadian Prime Minister Justin Trudeau. “You’re a very smart guy,” he said, addressing Trump. “But this is a very stupid thing to do.”
Trump’s measure caused a sense of economic anxiety and anger among the Canadians about how they are being treated by their neighbor, ally and best client. Most are still intrigued by Trump’s motivations and objectives for tariffs, as well as his comments on Canada’s attachment as the 51st state.
Mexico has made a great effort to defend themselves from tariffs, agreeing to send more than two dozen cartels to be tried in the United States and sending troops to Fentanil and US border laboratories. After all, the rates were validated after midnight on Tuesday.
Mexico President Claudia Sheinbaum said that if the tariffs remain in force, Mexico will announce contracted, including retaliatory tariffs on Sunday. “We don’t want to go into a trade war,” she said. “It only affects people.”
Retaliatory tariffs from China, Canada and Mexico should harm farmers, manufacturers and other US exporters.
What is the impact on consumer prices?
Trump tariffs target countries that are large suppliers of a wide range of products for the United States.
For American families, the probable result is higher prices in supermarket corridors, car dealers, electronics stores and pump.
(The Trump government said on Wednesday it would allow automakers to escape the tariffs imposed on all products in Canada and Mexico for a month.)
Fresh products, many of which are imported from Mexico, are one of the first categories where buyers may notice an increase in prices. This can happen within a few weeks for avocados, tomatoes and mexican strawberries, among other products.
Price increases should also reach beverage shelves, especially beer and tequila. By 2023, almost three quarters of Mexico’s US agricultural imports consisted of vegetables, fruits and beverages, according to the US Department of Agriculture.
It can take more time for prices to rise to durable goods, such as cars, thanks to existing stock, or if companies expect tariffs to be temporary.
Trump argued that price increases will be minimal compared to other economic benefits. In a speech to Congress on Tuesday, the president said: “There will be a little disturbance, but we are fine with it. It won’t be much. ”
How is the automotive sector?
Over the past three decades, since the North American free trade zone was created in 1994, automakers have built supply chains that cross the borders of the United States, Canada and Mexico.
Manufacturers get economies of scale by building engines and broadcasts large enough to supply multiple vehicle factories in North America. Similar thinking also works for other pieces – seats, instrument panels, electronics, axes.
For example, Chevrolet Blazer 2024, a popular SUVs made by General Motors, is mounted on a factory in Mexico using engines and transmissions produced in the United States.
Nissan manufactures its sedan Altima in Tennessee and Mississippi; The turbocharged version of the car has a two -liter engine that comes from Japan and a transmission made in a factory in Canada.
The threat of tariffs worries the automakers. “Let’s be honest,” Ford Motor CEO Jim Farley said at an investor conference in February. “In the long run, a 25% rate at the borders of Mexico and Canada would open a hole in the US industry we have never seen.”
This article was originally published in The New York Times.
