CNN
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Well, it finally happened: President Donald Trump fulfilled his promise to impose sweeping tariffs on America’s top three trading partners, Mexico, China and Canada.
Collectively, these three countries shipped $1.4 trillion worth of goods to the United States last year, accounting for 40% of all the goods the US imported, according to Commerce Department data.
Effective immediately, all goods coming from Mexico and Canada, with the exemption of Canadian energy products, are subject to a 25% tariff. Goods coming from China are subject to a 20% tariff. As the countries vowed retaliatory tariffs on the US, Commerce Secretary Howard Lutnick said again Wednesday there may be some room for negotiation on the Mexican and Canadian tariffs.
The tariffs, which Trump tied to stopping the flow of fentanyl into the US, threaten to significantly raise prices of goods at a time when the economy is already on shaky ground.
Trump and members of his administration have often shrugged off concerns about the additional cost tariffs present for US businesses, claiming foreign countries are the ones who pay for it. That’s not exactly true, though.
Here’s what you need to know about tariffs:
The definition of a tariff is fairly straightforward — it’s a tax on goods coming from another country.
A tariff is typically structured as a percentage of the value of the import and can vary based on where the goods are coming from and what the products are.
Domestic businesses that import products into the country pay the tariffs up front, contrary to Trump’s claims that exporting nations foot the bill.
The actual transaction occurs at the 328 points of entry into the US designated by Customs and Border Protection to take in imports, including airports, railways, roads and ports.
At those ports of entry, CBP agents collect tariff revenue from the domestic businesses importing the products, which is calculated based on how the merchandise is classified and where it came from, said Ted Murphy, a lawyer at Sidley Austin who specializes in advising businesses on customs compliance issues.
Many importers use the government’s electronic payment system, which automatically deducts tariff from a designated bank account. It’s also possible to pay it all at once on a monthly basis rather than having it automatically deducted each time.
But Trump isn’t entirely wrong in saying that other nations pay for tariffs levied on them, Murphy said. That’s because when businesses know they’ll have to spend more to import goods from one country versus another, they may decide it makes more financial sense to find a new supplier elsewhere or, in Trump’s ideal world, shift their production to the US.
In either case, the economy of the country whose goods are tariffed can suffer from the loss of revenue, potentially resulting in job losses.
However, exporting nations often don’t just accept tariffs without fighting back.
