How do fares actually work?

It’s election week, and Vice President Kamala Harris and former President Donald Trump are making last-ditch efforts to recruit voters. At the forefront of many Americans’ minds is, of course the economy.

Politicians often campaign on economic promises, whether it’s lowering taxes, fighting inflation or creating jobs. But this election season, Americans have heard a lot about one type of tax: tariffs.

Harris said he would support it targeted tariffs on clean energy components made in China. The goal is to make Chinese goods expensive, encouraging American businesses to buy domestically made goods instead.

Trump has taken a bolder, promising stance blanket tariffs of 10% to 20% on all importsin addition to raising drastically existing tariffs on Chinese goods. At a campaign event on Monday, he announced a plan to impose tariffs on all goods from Mexico as a tool to pressure the nation to stop unauthorized immigration across the US-Mexico border.

“To me, the most beautiful word in the dictionary is tariff,” Trump said in one speaking last month at the Economic Club of Chicago.

Tariffs may seem less relevant to ordinary Americans than, say, income taxes or mortgage rates. But economists agree that the tariff policy Trump is pushing will be raises prices for American consumers, lower household income and antagonize foreign governments in economic retaliation.

Trump and his running mate, Ohio Sen. JD Vance, have said repeatedly at campaign events that the rates it only harms foreign governments. Economists disagree. In fact, most would say American consumers bear the weight of tariff costs.

Want to know more about rates? I answered some of the general questions below with the help of Ajay Mehrotra, professor of tax law and economic history at Northwestern University.

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What is a tariff?

A tariff is a tax imposed on a good when it crosses a national border. Export tariffs are outlawed in the US Constitution, but import tariffs are implemented as a foreign policy tool, source of revenue, and way to protect domestic industries.

Who has the power to adopt a tariff?

Under the Constitution, Congress’ job is to regulate commerce and impose taxes. However, the president can also enact tariffs in cases of international security or economic crisis. Since when tariff act passed by Congress worsened the Great Depression, the power to impose tariffs largely transferred to the president. In fact, according to some interpretations, the executive can unilateral impose any trade restrictions.

Have other US presidents used tariffs to raise money?

The rates were a the primary source of government revenue in the early years of the United States. But as the nation grew, tariffs shifted from a revenue-raising vehicle to a tool to keep out foreign competition, Northwestern’s Mehrotra said.

“If you’re using it as a tool of international trade, you’re not actually raising money, right? If the purpose is to protect and preserve the goods, then nobody buys them, so nobody pays the tax,” he said. This also created the conditions for monopolies to form – as high tariffs made foreign goods prohibitively expensive, domestic industries enjoyed less competition.

Eventually, the destruction of trust, the push for fairer taxation and the need for wartime funds as the First World War loomed meant that in the early 20th century it came to a tax on gradual income. replace tariffs as the primary source of government revenue.

During the campaign, Trump repeatedly said he wanted to emulate the tariff policies of President William McKinley, who held office from 1897-1901. McKinley saw tariffs as a way to protect American industries from foreign competition. But for the most part, economists agree that they are outdated and inefficient. (They also agree Trump has misinterpreted and misrepresented the legacy of McKinley’s tariff policy.)

What are some goods that the US has tariffs on now?

When Trump was last in office, he imposed tariffs on steel and aluminum. The Biden administration replaced some of those tariffs with a quota system. Solar panels and washing machines have also been subject to tariffs under the Trump and Biden administrations.

Trump also unilaterally enacted tariffs on billions of dollars worth of Chinese-made goods. Biden left some of those policies in place and in May 2024 announced additional tariffs on goods made in China, with less focus on industries his administration owns. worked to build internallysuch as electric vehicles and clean energy.

Who pays the rates? How does it affect me?

In the case of tariffs, importers pay the tax directly to the US government. The nation that sent the goods pays nothing, despite what Trump said. But who actually pays the price of tariffs is more complicated – importers can raise prices to offset a tax, meaning distributors, retailers or actual consumers payment the tariff.

“When Trump says he’s going to put a 100 percent tariff on something like Chinese goods, and (he says) Chinese manufacturers are going to pay, we should be very skeptical of that claim.” Mehrotra said.

Trump-Biden tariffs reduced long-run GDP, capital stock and employment, according to report from the Fiscal Foundation. It also estimates that these tariffs increased tax collection by up to an average of $200-300 per household.

It’s just the rates we already have. Independent studies by the Center for American Progress, the Fiscal Foundation, the Institute on Taxation and Economic Policy, the American Action Forum and the Peterson Institute for International Economics found, on average, that Trump’s aggressive 2024 tariff plan will add $3,954 to household costs per year.

Can other countries do anything about US tariffs?

Imposing high import tariffs can have another consequence: retaliation. When Trump enacted tariffs on aluminum and steel, Canada and the EU responded by raising tariffs on US imports. The same happened with the goods that the US exports to China. In fact, 92 percent of China’s tariff revenue between 2018 and 2020 went to bail out American farmers who suffered losses due to retaliatory tariffs on U.S. agricultural goods, according to Council on Foreign Relations.

Economists and foreign policy analysts worry that if Trump imposes the tariffs he has campaigned for, he could trigger an all-out trade war.

“All the historical evidence shows that trade wars are not good. They are not good for international relations,” Mehrotra said. “There is good evidence that they are also causing both domestic and global economic turmoil and uncertainty.”

How do Trump’s and Harris’ tariff promises compare?

The rates are not covered in Kamala Harris’ official campaign promises. She, like Biden, is expected to support tariffs targeting clean energy goods in China. At campaign events, she referred to Trump’s tariff plan as “Trump sales tax.”

During the campaign, Trump promised a blanket tax of 10 percent or 20 percent on all imports, as well as a tax of 60% or higher on Chinese products. The Peterson Institute estimated that such a plan would cost US families between $1,700 and $2,600 per yearand shifts the tax burden disproportionately onto lower-income consumers.

Most recently, at a campaign event on Monday, Trump promised a 25% – 100% tariff on all goods from Mexico if the country does not prevent migrants from crossing the US-Mexico border. This eleventh hour announcement is contrary to free trade agreement Trump signed with Mexico and Canada when he was in office.

Do you want to know more? Read or listen to our other fare coverage:

Trump vs. Biden/Harris:

How Tariffs Compare in the Biden and Trump Eras

Economic issues take center stage during the presidential debate

The problem with Trump’s idea to replace income taxes with tariffs

Tariffs for Chinese goods:

What is the state of economic relations between the US and China?

How China’s new tariffs could affect prices for US business owners, consumers

How do voters feel about the Biden administration’s China tariffs? – The market

Steel and other metals:

Once again: Who Pays Tariffs on Chinese Steel?

Higher tariffs may be bad for trade but good for the environment

The US and Europe are working on a new deal on tariffs

How companies feel about tariffs:

Businesses have mixed feelings about the Biden administration’s new tariffs

Farmers look to Washington for easing inflationary pressure

DHL CEO on economic protectionism and the German economy

Why the US solar manufacturing sector can’t agree on tariff policy