Tariffs — An Explainer

Updated May 15, 2025

What are tariffs?

Tariffs are taxes on imported goods. When targeted and strategically planned, they can counter unfair trade practices, serve as negotiation leverage, and generate revenue. When combined with subsidies in a national industrial policy, tariffs can support strategically important industries like electric vehicles and semiconductors. They can also protect domestic jobs, address trade imbalances, and pressure foreign adversaries. But not all tariffs are created equal. Broad, poorly planned tariffs can harm the economy, trigger trade wars, and disrupt global stability.

Who pays for tariffs?

Tariffs are charged at U.S. ports when goods are imported. While sellers or importers may absorb some costs, research shows most tariffs are passed on to consumers. Even American-made products can get pricier if they use imported parts. Yale’s Budget Lab estimates Trump’s tariff plan will cost the average US household $2,800. That’s effectively a 17.8% sales tax on US consumers, the highest since 1934.

What’s the latest on Trump’s trade war?

Since taking office, President Trump has threatened, imposed, rolled back, reinstated, and delayed a confusing and chaotic array of tariffs against almost every nation in the world, including our largest trading partners. Trump claimed emergency powers to enact these tariffs unilaterally by executive order, but his claim of a worldwide “economic emergency” lacks factual support. The US economy was not in crisis before Trump’s trade war began, and global trade imbalances do not meet traditional definitions of a national emergency. The upheaval has raised serious alarms about a global economic downturn and increased inflation. While Congress has the power to roll back or adjust Trump’s tariffs, House Republicans recently removed that ability. New legislation is required to restore it.

Recently imposed and in effect

Canada & Mexico: All products except those that fall under the US-Mexico-Canada free trade agreement are subject to 25% tariffs. That’s about half of imports from Mexico and over 60% from Canada. Energy and potash are subject to 10% tariffs.
China: Between February 1 and April 9, tariffs on Chinese goods escalated as high as 145%. On May 2, Chinese goods that go through the postal system are now taxed at 30% after previously being exempt. On May 12, the tariff rate on China was temporarily lowered to 30%.
Aluminum & steel: An expanded 25% tariff on all steel and aluminum imports began on March 12. Canada is the largest foreign supplier of steel and aluminum to the US. European Union countries are also impacted. The US is the second largest importer of EU steel, buying about 16% of its volume. UK steel and aluminum is exempt.
Autos & auto parts: A 25% tariff on all imported autos and auto parts began on April 3. This includes US autos completed in Mexico and Canada. Facing blowback from US automakers, Trump made some modifications, allowing US automakers to temporarily receive some credits for parts (except those made in China) imported for US-assembled autos.
Global “baseline” tariff: On April 5 a 10% tariff was imposed on almost all trading partners except China, Canada, and Mexico (already subject to previously imposed tariffs). Surprisingly, Russia was excluded from the tariffs, but Ukraine was not.

Coming soon

June 1, 2025: The $25 per item tariff placed on all Chinese goods that go through the postal system will double to $50.

July 8, 2025: The 90-day pause on “reciprocal tariffs” ends. Nearly 60 trade partners were hit with tariffs ranging from 10% to 50% on April 9 and paused the same day. Using a calculation method derided as “nonsense” by experts, the list even included remote islands inhabited only by penguins. “Reciprocal tariffs” on China remain in effect.

August 10, 2025: The 90-day pause on the trade war with China ends. If a permanent deal is not reached by then, tariffs on Chinese goods could return to 145% and China could restore their retaliatory tariffs of 125% on US goods and other restrictive measures.

Retaliation

Canada responded by announcing an immediate 25% retaliatory levy on about $100 billion worth of US goods. Citizens were also urged to buy Canadian and avoid vacationing in the US, including Maine. Ontario cancelled a $68 million contract with Elon Musk’s Starlink and imposed restrictions on US companies doing business in Ontario. Following the enactment of Trump’s tariffs on auto imports, Canada enacted a 25% levy on auto imports from the US that fall outside of the USMCA trade agreement. Some adjustments to the auto import tariffs have since been made.
China increased tariffs on all US goods to 125% after Trump’s April escalation and suspended exports of certain minerals and magnets US defense and tech industries rely on. It also tightened restrictions on US companies doing business with China. On May 12 China temporarily lowered its retaliation rate to 10% and paused other export controls enacted since April.
European Union: The EU suspended its retaliation when Trump’s reciprocal tariffs were paused, but it plans to impose 25% tariffs on a wide range of US goods if Trump reinstates them.

How will the new tariffs impact the US economy?

While the situation remains fluid and much remains unknown, financial markets and industry leaders are responding negatively to the uncertainty and shifting sands. In just two days following Trump’s tariff plan unveiling, markets plunged dramatically, losing $6 trillion in value. Without a permanent deal, a full-scale trade war between the U.S. and China could cause the world’s economy to shrink by almost 7% over time. All of this volatility will have serious repercussions for American workers, families, and businesses.

Increased consumer costs: Higher tariffs on imported goods will lead to increased prices for everyday products, from clothing and gas to cars and phones.
- Clothing: About 97% of clothing bought in the US is imported. Prices are estimated to rise 19% on shoes and 16% on clothing in the long term.
- Gas and energy: Canada is the largest supplier of energy to the US, via crude oil, heating oil, natural gas, and electricity. Nationally, gas prices are projected to rise by 5 to 20 cents per gallon. New England is especially reliant on Canadian energy and will see even higher increases, with gas prices rising 20 to 40 cents per gallon and electricity costing New Englanders an additional $66 million per year.
- Cars: Auto prices are expected to increase more than 9% in the near term and stay 6.2% higher in the long term. That’s the equivalent of adding $3,000 to the price of an average new car. The North American auto industry is highly integrated, with parts and components crossing US borders several times before the vehicle is completely assembled. Because of this, and because cars will also be impacted by rising costs of steel and aluminum, the impact will be severe and widespread. Some carmakers have already closed factories, halted production, and laid off workers. Price inflation will spread to used cars and car parts as well, as demand for them increases.
- Food: Food prices will rise 2.3%. Fresh produce will be 3% more expensive.
- Cellphones, computers, and gaming devices: About three quarters of cellphones, and almost all laptop computers and video game consoles are made in China. Prices on electronics are projected to rise by $18.5 in the long term.
Increased construction prices: Increased costs for imported Canadian lumber and raw materials will make housing and infrastructure projects more expensive. Prices for building materials are projected to increase as much as 6% this year, and the cost of fixtures could jump up to 20%.
Turmoil and uncertainty for small businesses: While Trump has shown willingness to make temporary concessions to big US corporations, small businesses have been left to face steep and unexpected new costs on their own. Quickly reinventing established and specialized supply chains is not always possible. Worse, business owners don’t know which countries or products will be targeted next or how long disruptions will last.
Economic slowdown: Economists estimate the full slate of global tariffs could shrink the US economy by 0.7% in the near term. In the long run, that’s the equivalent of losing $110 billion annually. In just the first quarter of 2025, GDP growth is projected to drop 2.4%. If that pace continues, it would be the worst plunge since the COVID-19 shutdown in early 2020.
Inflation: As import costs rise, inflation will increase. Consumer sentiment reflects that concern, plummeting to the second lowest level on record. The April reading was even lower than what was seen during the Great Recession, with inflation expectations rising to their highest level in 44 years.
Job losses: Industries dependent on global supply chains may be forced to cut as many as 456,000 full-time jobs due to higher costs. The tariffs also present a trade-off in jobs. While manufacturing output could grow 1.5%, construction contracts shrink by 3.1% and agriculture by 1.1%.

How will the new tariffs impact Maine?

Maine’s economy is deeply intertwined with Canada’s. 70% of Maine’s imports come from Canada, and about 48% of Maine exports go to Canada in return. Maine and Canada exchanged over $6 billion in two-way trade in 2024, supporting over 60,000 good-paying jobs. Maine’s economy will be directly impacted in many ways, including:

Higher energy costs: Nearly all of Maine’s heating oil comes from Canada. Heating oil suppliers are already preparing their customers for steep price increases, even for those with fixed price accounts and cap protections. With about 70% of homes dependent on heating oil, Maine is more reliant than any other state. Mainers could see a 10- to 20-cent increase per gallon at the gas pump and a 20- to 30-cent increase per gallon of home heating oil. Electricity rates are also expected to rise. Aroostook and Washington county residents are projected to see a 5% increase on their monthly bill.
Depressed tourism: Canada called for its citizens to avoid vacationing in the US as retaliation. In 2023, Canadians accounted for 5% of Maine visitors. They spent more than $450 million in Maine, generating over $800 million in economic impact and $67 million in state and local tax revenue. Land crossings from Canada to Maine were down 35% in April. The Maine office of tourism expects a 9.5% drop in international visitors overall. This significant decline will have a serious impact on Maine’s economy.
Severe strains on the lobster industry: Rollbacks of some tariffs mean that Maine lobster, which is often processed in Canada, is now spared a direct tariff hit when it returns across the border. But other serious threats remain. The 125% retaliatory Chinese tariff on US lobster was lowered to 10% in May, but could be restored in August without a long-term agreement. And if the projected economic downturn prompts people to buy fewer luxury goods, lobster is far less likely to be on the menu. Maine lobstermen also rely on Canadian diesel, rope, and buoys. Industry experts warn the combination of tariffs and catches at 15-year lows resulting from warming oceans could put hundreds of out of business.
Higher housing costs: Increased costs for building materials will drive up housing costs, eat into builders’ profit margins, and make it harder for Maine to meet its ambitious goal to build 84,000 new homes in the next five years. Home prices could rise between 5% and 10% on top of prices that have already risen 75% in the last 5 years.
Small businesses like craft breweries will suffer: Most of Maine’s aluminum comes from Canada, and most of the 25% increase on the cost of aluminum cans will be borne by small breweries or passed on to consumers. Even Maine manufacturers sourcing materials within the US are struggling. The increased demand on US steel has already driven the cost up 35%.

What was learned from Trump’s last trade war?

During Trump’s first term, his administration waged a trade war primarily against China, but also imposed tariffs on steel, aluminum, and other goods from allies like Canada and the European Union. The Biden administration kept some of the tariffs against China in place, and even increased them on specific goods, including solar cells, electric vehicles and batteries, medical equipment, steel, and aluminum. While Biden’s tariffs were also critiqued by free trade advocates, they were generally considered successful in advancing the policy goals they were crafted to complement: addressing supply chain disruptions and speeding a US industrial transition to clean energy technology that prioritized high-quality jobs. And while Trump’s 2020 free-trade deal with Mexico and Canada is credited with strengthening trade relationships with our neighbors, his ill-defined tariff-fueled trade war was found to be damaging in many ways, including:

Higher prices for consumers: Tariffs on Chinese goods led to increased costs for US companies, which in turn raised prices for American consumers by approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.
Slower economic growth and lost jobs: The tariffs against China are estimated to have slowed economic growth by 0.2% and cost the equivalent of 142,000 jobs. Rural agricultural jobs saw the greatest negative impact.
Farmers and fishermen hit hardest: When China retaliated by slapping steep tariffs on US food products, farmers suffered export losses totaling $27 billion. In Maine, lobster exports to China — the state’s second biggest customer — dropped 84% during the first 11 months of the trade war. Wild blueberry exports dropped nearly 100%. Taxpayers paid $66 billion to bail out farmers, which accounts for nearly all the revenue the trade war generated — and equals the annual cost of the nation’s entire food assistance program (the Supplemental Nutrition Assistance Program, or SNAP).
Harm outweighed benefit of steel and aluminum tariffs: While US steel and aluminum producers saw a $2.8 billion increase in production, industries impacted by higher prices of those materials suffered a $3.4 billion production decrease.
Construction costs surged: Canada provides a third of the lumber used in the US. Tariffs on Canadian softwood added an estimated $9,000 to the cost of constructing a single-family home.
Trade imbalances remained: The trade agreement Trump ultimately made with China in 2020 was supposed to narrow the trade gap and result in China buying $200 billion worth of US goods, including Maine lobster. China never bought any of it.

Did you know…?

The new tariffs lift America’s average tariff from 2.4% to 28%, the highest level since 1901.
Nearly a quarter of oil America consumes per day comes from Canada. About 60% of US crude oil imports are from Canada, and 85% of US electricity imports as well.
The US imported about 8 million cars and light trucks in 2024.
About 17% of the alcohol consumed in the US comes from the EU. The US exports about $4 billion worth of alcohol each year.
In 2024, China purchased 5% of US farm exports worth an estimated $29 billion. One quarter of the nation’s soybean crop is exported to China.
As a result of Trump’s first trade war, China stopped buying Boeing aircraft. Before the tariffs, China accounted for 25% of Boeing’s sales.
After China slapped steep retaliatory tariffs on US lobster, Canada’s lobster sales to China more than doubled.
Maine is the 3^rd largest seafood exporter in the US. Seafood is our state’s top export, closely followed by transportation equipment.
84% of Maine exporters are small businesses.
International trade supports 1 in 5 (170,300) Maine jobs. Foreign-owned companies employ 37,300 Maine workers.