How tariffs work and their impact on the US economy

Economics correspondent Paul Solman of PBS Newshour discussed the tariff situation in North America – see video below. The U.S., Canada and Mexico all agree to delay the start of President Trump’s tariffs and hold off, at least for now, on the possibility of a trade war among allies. But the delay is only for a few weeks, and, as of now, there will be new tariffs taking effect tomorrow, 10 percent on goods from China. That’s already on top of tariffs on Chinese products and materials dating back to President Trump’s first term. Tariffs, taxes on imports to the U.S. collected at 328 ports of entry across the country. What is the rationale for this move by the Trump Administration?

1. To raise money from foreigners, instead of taxing Americans but only about 2% of federal revenue comes from the tariff. Total federal revenues in a typical year, they’re over $4 trillion. Almost $3 trillion of that is a combination of the individual income tax and the corporate income tax, whereas we think the maximum you could get out of tariffs would be around $800 billion

2. Tariffs protect American industry from foreign competition, a la the future 25th president of the United States, William McKinley. William McKinley, as chair of the House Ways and Means Committee, ushered through a piece of legislation that became known as the McKinley tariff. It was passed in 1890. And it had revenue effects. It was designed to protect domestic industry from foreign competition.

Canada will be responding to the U.S. trade action with 25 percent tariffs against $155 billion worth of American goods, such as American beer, wine, and bourbon, fruits and fruit juices, including orange juice, along with vegetables, perfume, clothing, and shoes. It will include major consumer products like household appliances, furniture, and sports equipment, and materials like lumber and plastics, along with much, much more. Justin Trudeau – Canadian Prime Minister.

Tariffs are regressive The tariff is a very regressive tax. It hits lower-income households more than higher-income households. So if we were to attempt to try to cut the income tax or replace the income tax with a tariff, the US would be going from a fairly progressive tax system to a very regressive tax system

Source: PBS Newshour – February 4th 2025

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