Trump orders tariffs as high as 50% (Tariffs Part 1)

The Trump Administration projects U.S. importers will pay $6 trillion over 10 years in the new tax. In this post we look at the projected impact, Trump’s rationale, and Congress’s response.

Declaring U.S. trade deficits with other countries to be a “national emergency,” on Wednesday President Trump imposed a 10% across-the-board tariff on all imports and higher tariffs on at least 60 nations. Cumulatively, Trump’s tariffs are the highest in U.S. history since 1909.

In his April 2 executive order and previous orders announcing tariffs on Chinese, Canadian, and Mexican imports, Trump relied on two laws from the 1970s giving “emergency” powers to the President. We’ll come back to that in our next article. In this article we’ll cover the projected impact, Trump’s rationale, and Congress’s response.

Tariffs are taxes on U.S. companies that may raise prices around 10% for U.S. consumers

Tariffs are a tax paid by companies importing foreign goods, like major retailers or firms that outsource production — so these tariffs will be paid by U.S. companies. Although they may absorb some of these costs or source more products domestically, the Trump Administration’s own estimate is that a quarter of tariff costs will be passed onto consumers, and they say the federal government will take in $6 trillion over 10 years from these tariffs. (Independent estimates are less than half that.)

The small African nation of Lesotho, a major maker of jeans, will have a 50% tariff. Its textile industry grew significantly after a 2000 treaty encouraged export to the United States. Seven Southeast Asian countries including Vietnam will have tariffs between 36% and 49%.

In the short term, Yale’s Budget Lab expects the April 2 tariffs to cost households an extra $2,100, with the Lab expecting a 17% increase in consumer prices for apparel. Because of additional new tariffs on foreign-made cars, the Lab also expects an 8% increase in the cost of motor vehicles – an additional $4,000; food prices would rise 3-4%. Electronics like iPhones likely will cost hundreds of dollars more, as will furniture manufactured in Vietnam and China. The Center for Strategic and International Studies estimates prices will rise by 10% overall.

Some businesses also may seek cost savings, like smaller quantities of a product or cheaper packaging. Buying domestically may not be easy:

Thirty years after the ratification of the North American Free Trade Agreement, Mexico and Canada are our largest trading partners. They were exempted from the April 2 order because on March 26, the Administration announced tariffs of 25% on autos and auto parts made in Canada and Mexico in an effort to return manufacturing back to the U.S. That reverses the trilateral trade deal known as “USMCA,” which was negotiated by the first Trump Administration and encouraged the integration of American, Canadian, and Mexican supply chains in vehicle manufacturing. Rerouting them now would be a long and expensive process for manufacturers.

The Trump Administration’s stated rationale versus the actual rationale

The Administration said in its executive order that the tariffs are intended to encourage Americans to consume domestically-made products, move manufacturing back to the U.S., and close trade deficits with all nations, which in 2024 was a total of $1.2 trillion.

Economists are struggling to see how tariffs help with industrial reshoring. Corporate outsourcing of manufacturing to foreign countries has a long and complex history connected to broader trends like the financialization of the U.S. economy beginning in the 1980s and intentional shift to service-sector employment. Economists have debated for decades if offshoring actually is beneficial to American economic growth and if it affects domestic employment overall. Moreover, high-tech manufacturing requires much less labor because of automation. The Biden Administration attempted targeted reshoring in specific industries like semiconductors and photoelectrics through tax incentives and tariffs as part of a dedicated industrial policy. Even economists who support tariffs as part of an industrial policy see no connection to a national economic strategy in the April 2 announcement.

And the corporate tax cuts Trump signed into law in 2017, which Republicans are seeking to extend permanently, also exempted corporations’ profits made offshore from being taxed, encouraging offshoring.

The White House misleadingly described the tariff rates as being “reciprocal” of what those countries charge on American imports. Actually, foreign tariffs on American goods are much lower than the reciprocal tariffs that the White House announced — at least for now, since those countries may enact their own reciprocal tariff. Trump’s tariff rates are, instead, based purely on the trade deficit in goods with each country (and trade deficits in goods aren’t necessarily a bad thing, the U.S. also exports services). (Some are speculating that the Trump Administration used AI instead of economists to come up with the tariff rates, and that may explain why they set tariffs on uninhabited islands and on a joint U.S.-British base on Diego Garcia, in the middle of the Indian Ocean.)

Tariffs also give the Trump Administration new leverage over U.S. companies and foreign nations who may seek exemptions from the tax in exchange for cooperating with the Trump Administration in other ways. In the days after the announcement, the Administration has sent mixed signals about whether it will negotiate with foreign governments to lower the tariffs. Commerce Secretary Howard Lutnick and senior trade advisor Peter Navarro both told interviewers the rates were permanent, but Trump said they gave him “great power to negotiate.” Two days later, he said they were permanent.

The tariffs go into effect on April 9, according to the executive order, and Congress may consider intervening.

Since the President’s power to set tariffs comes from a law passed by Congress, Congress could reverse it by passing a new law. The Senate passed such a bill shortly after Trump’s announcement, with Republican Sens. Collins, McConnell, Murkowski, and Paul joining all Democrats. But the House probably won’t consider the House version, and neither chamber has the votes to override Trump’s likely veto anyway.

Some discussion of clawing back congressional power over tariffs has begun. Sens. Chuck Grassley (R-IA) and Maria Cantwell (D-WA) introduced a new bill requiring the President to notify Congress within 48 hours of a new tariff proposal and requiring the House and Senate to pass a joint resolution of approval within 60 days for it to go into effect. The bill also empowers Congress to end any tariff through a resolution of disapproval.

We’ll be back next week with a deeper dive into the “emergency” powers Trump used to order the tariffs.