At a Wednesday press conference, President Donald Trump announced a sweeping slate of new tariffs — a plan his administration has dubbed “Make American Wealthy Again.”
Among the new levies: a 25% tariff on all foreign automobiles, set to take effect an 12:01 a.m. on Thursday, as well as a wave of reciprocal tariffs on U.S. trading partners. Any country exporting to the U.S. will be charged a baseline tariff of 10%. Those with a higher aggregate tariff on U.S. imports — which Trump says includes “the combined rate of all their tariffs, nonmonetary barriers and other forms of cheating” — will face a tariff equal to half that amount.
That means imports from China, which charges a 67% levy on U.S. exports, according to the administration, will face an additional 34% tariff from the U.S., on top of the 20% Trump has already imposed. Imports from Japan and South Korea will come with duties of 24% and 25%, respectively, and the European Union will face a 20% tariff.
Trump said the rollout is the culmination of policy promises he made on the campaign trail, but his love of tariffs goes back further than that.
“I believe very strongly in tariffs,” Trump said on ABC’s “Nightline” in 1989. “I believe that Japan — and I’m not just saying Japan, I’m saying that all of the many nations that abuse the United States should pay a major tax — like a 15 or a 20% tax on any product they sell in the United States.”
At the time, American’s trading partners, including Japan, South Korea, Saudi Arabia and West Germany, were ripping off the U.S., he said.
“We’re a debtor nation, and we have to tax, we have to tariff, we have to protect this country. And nobody’s doing it,” Trump said on “Nightline.”
Here’s how his administration says it intends to use tariffs, and what economic experts say about their potential impact.
During his confirmation hearing earlier this year, Treasury Secretary Scott Bessent laid out three ways Americans should think about Trump’s tariff policy.
“One will be for remedying unfair trade practices,” he said. Two, as “as a revenue raiser for the federal budget.” Thirdly, he added, “the tariffs can be used for negotiations,” such as putting pressure on Mexico to help with the fentanyl crisis.
Here’s a closer look at each of those points.
Goal No. 1: Making trade more fair, and boosting U.S. manufacturing
The Trump administration views the fact that some other countries place tariffs on U.S. goods — while the U.S. doesn’t do the same — as fundamentally unjust. Trump says he intends to roll out “reciprocal tariffs” on nations that currently have duties on U.S. goods to remedy that imbalance.
Trump posits this as a way to boost domestic manufacturing. Making it more expensive to create and import goods from abroad, his administration reasons, will incentivize firms to move production to the U.S.
The complication: Costs could go up for consumers
Because importers of foreign goods pay the tariffs, economists generally expect firms to pass along those costs to consumers, at least in part.
Just how much prices on cars and other imported goods could go up, however, remains unclear — especially since businesses are aware that their customers already feel financially stretched, says Jeffrey Roach, chief economist for LPL Financial.
“In a weakening economy in general, consumers are going to be very sensitive to price changes,” he says. “I think corporations are going to say, ‘We’re going to eat some of this,’ and maybe not be able to pass along as much as they might think.”
In an interview on Saturday with NBC News, Trump said it wouldn’t bother him if tariffs caused foreign car companies to charge more, as higher prices on imported vehicles would ultimately benefit American automakers — and, down the line, factory and assembly-line workers.
“I hope they raise their prices, because if they do, people are gonna buy American-made cars,” Trump said. “I couldn’t care less because if the prices on foreign cars go up, they’re going to buy American cars.”
Goal No. 2: Raising revenue
Since a tariff is essentially a tax on imported goods, under the proposed policy, U.S. importers will pay more in taxes to the U.S. government.
That’s a big deal for this administration, which is keen to extend the 2017 Tax Cuts and Jobs Act, currently set to expire at the end of 2025. Keeping those cuts on the books would decrease revenue by $4.5 trillion from 2025 through 2034, according to estimates from the Tax Foundation.
Trump economic advisor Peter Navarro on Sunday said tariffs could more than close that gap, estimating that import taxes could generate revenue of more than $6 trillion over the next decade. In the past, he and Trump have even floated the possibility of tariffs replacing income tax as the main way the government collects money.
The complication: Tariffs may not bring in enough revenue to pay for tax cuts
The Tax Foundation estimates that a 20% universal tariff could raise $3.3 trillion through 2034, before factoring in how the duties would slow down the economy.
“President Trump’s vision is channeling President McKinley, way back when tariffs were the primary source of revenue to run the government,” Navarro said during a February interview on Fox News. Tariffs made up around 50% of revenue for much of the late 1800s and early 1900s, including during the McKinley administration, until the 16th amendment to the U.S. Constitution, ratified in 1913, gave the federal government power to collect income tax.
Some economists are skeptical of the idea that tariffs could be a meaningful replacement for income tax revenue.
In fiscal year 2024, the $77 billion the U.S. collected in tariffs amounted to 1.57% of total federal revenue, per the Congressional Research Service.
Tariffs would have to be astronomical to make up the difference, Erica York, vice president of federal tax policy with the Tax Foundation’s Center for Federal Tax Policy wrote in a 2024 analysis. According to her analysis, even a tariff hike of nearly 70% from 2023 levels would fail to push revenue over $1 trillion.
“The math doesn’t work,” York wrote.
Goal No. 3: Using tariffs as leverage to negotiate
Trump, who likes to negotiate from a position of power, views tariffs as a stronger tool than economic sanctions to get other countries to do what he wants, Bessent said during his confirmation hearing.
In placing tariffs on some of the nation’s largest trading partners, the President “is taking bold action to hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country,” a White House fact sheet reads.
The complication: Tariffs can start trade wars
After Trump announced new tariffs on China, that country responded with a levy of 15% on some U.S. imports. Canada and Mexico have vowed to begin taxing certain U.S. products, and nations in the European Union are prepared to impose retaliatory taxes if necessary.
In the past, this sort of saber-rattling has sometimes led to trade wars — scenarios where nations continue to escalate to the point of choking international trade. These conflicts can be bad news for the U.S. economy and stock markets.
Take the Tariff Act of 1930, which raised duties on 25% of U.S. imports. The bill, known as Smoot-Hawley, caused international economic chaos. Nine nations imposed retaliatory tariffs. Others formed trade blocs that excluded the U.S.
The resulting collapse in global trade deepened the Great Depression, economists say. All in all, the move was “among the most catastrophic acts in congressional history,” according to a historical overview on the U.S. Senate website.
Trump’s tariff policies have already roiled markets and concerned consumers. If the economic outlook becomes more dire, don’t be surprised if the President pulls back — especially if he can tout deals he’s made as evidence that his policies have already succeeded, says Sam Stovall, chief investment strategist at CFRA.
“Trump realizes that if we were to ignite a global trade war, it would be like the Smoot-Hawley tariff of 1930 all over again,” Stovall says. “I don’t think he wants to do that. So I think he’s going to take what advantage of whatever opportunity he can to claim victory, even if those countries are simply agreeing to what they already agreed to.”
Want to earn some extra money on the side? Take CNBC’s new online course How to Start a Side Hustle to learn tips to get started and strategies for success from top side hustle experts. Sign up today and use coupon code EARLYBIRD for an introductory discount of 30% off $97 (+taxes and fees) through April 1, 2025.
Plus, sign up for CNBC Make It’s newsletter to get tips and tricks for success at work, with money and in life.
