There’s a new household name in 2025 and it’s not Taylor Swift or Beyonce… it’s tariffs. Ever since the second election of President Donald Trump, tariffs have become one of the hottest political topics this year. Many people are asking themselves how, if at all, these newest round of tariffs will affect their lives and livelihoods. Once a niche point of discussion reserved mostly for politicians and economists now everyone has a single question on their mind: what are tariffs?
What Is a Tariff?
At its core, a tariff is a tax imposed by a government on goods imported from other countries. Occasionally, tariffs are also levied on exports, but import tariffs are far more common.
The basic idea is simple: when a foreign product enters a country, the government charges an extra fee – typically calculated as a percentage of the product’s price. This fee is paid at the border by the importer (usually a business), but the cost is almost always passed on to the consumer in the form of higher prices.
Tariffs serve several purposes:
- Protect domestic industries by making foreign goods more expensive
- Generate revenue for the government
- Punish or pressure other countries during trade disputes
📌 Quick example: If the U.S. places a 25% tariff on imported steel, and a company imports $100 million worth of steel, the government collects $25 million. That cost will likely be passed to consumers in the form of higher prices on cars, appliances, and buildings made with steel.
Why Are Tariffs Called a “Tax on the Consumer”?
Economists often refer to tariffs as a “hidden tax” or “tax on the consumer” for one major reason: they raise prices.
While it’s businesses and importers that pay the tariff up front, they don’t just eat the cost – they build it into the price of their products. That means you, the consumer, are footing the bill every time you buy an imported good (or even a domestic one made with imported parts).
🎯 According to the Peterson Institute for International Economics, U.S. tariffs imposed between 2018 and 2019 during the first Trump administration cost the average American household around $800 per year.
Tariffs distort market prices. They create artificial advantages for domestic producers while removing some of the benefits of global competition, which typically drives prices up and quality down.
The History of Tariffs in the United States
Tariffs have been around as long as the United States itself. In fact, before the creation of a federal income tax in 1913, tariffs were the main source of government revenue. President Trump has cited this as a reason for his widespread overarching tariffs, teasing a potential end to the income tax though most economist agree that this isn’t feasible given the current size of the federal government (particularly The Pentagon).
➤ The Tariff Act of 1789
One of the first acts passed by Congress after the U.S. Constitution was ratified, the Tariff Act of 1789, imposed duties on imported goods to raise revenue and protect young American industries at the inception of the country.
➤ The 19th Century: Protectionism Reigns
Throughout the 1800s, tariffs were primarily used as a form of economic protectionism. This meant shielding American industries – like textiles, iron, and sugar – from foreign competition by making imports more expensive.
- The Tariff of Abominations (1828): One of the most controversial tariffs in U.S. history, this raised duties to nearly 50% on certain imports. It was fiercely opposed by Southern states and contributed to rising tensions that eventually led to the Civil War.
- The Morrill Tariff (1861): Passed just before the Civil War, it raised import duties to protect Northern manufacturers and fund the war effort. It marked the beginning of a high-tariff era that lasted well into the 20th century.
➤ The Smoot-Hawley Tariff Act (1930)
Perhaps the most infamous tariff in U.S. history, Smoot–Hawley raised duties on over 20,000 imported goods in an effort to protect American jobs during the Great Depression. The result? Other countries retaliated with their own tariffs, global trade plummeted, and the depression worsened.
📉 The volume of U.S. exports dropped by more than 60% between 1929 and 1933, partly due to retaliatory tariffs.
Smoot-Hawley remains a cautionary tale for economists and policymakers alike. President Ronald Reagan cited the failures of the Smoot-Hawley Act when criticizing tariffs generally during a radio address to the American people on September 13th, 1986.
“The Smoot-Hawley tariff ignited an international trade war and helped sink our country into the Great Depression.” – President Ronald Reagan
Modern Tariffs: Trade Wars and Global Supply Chains
In recent decades, tariffs have taken on a different role in a highly globalized economy. Most developed nations during the modern era, including the U.S., have reduced tariffs through trade agreements like NAFTA (now USMCA), the World Trade Organization (WTO), and various bilateral deals.
However, tariffs made a dramatic comeback in the late 2010s.
➤ The U.S.–China Trade War (2018–2020)
Under President Donald Trump, the U.S. imposed a series of tariffs on hundreds of billions of dollars of Chinese goods – primarily to address trade imbalances and alleged intellectual property theft.
China responded with its own tariffs on U.S. goods, especially agricultural products like soybeans and pork. This “trade war” led to global uncertainty, price increases, and supply chain disruptions.
Result: While the goal was to protect American manufacturers, several studies found that U.S. consumers bore the brunt of the costs. Businesses dependent on global supply chains – like automakers and electronics firms – also struggled with rising input costs.
➤ “Liberation Day” Tariffs (April 2nd, 2025)
The most recent and most aggressive swathe of tariffs implemented thus far in the modern era were announced on April 2nd, 2025 by President Donald Trump during the beginning of his second administration. Dubbed “Liberation Day”, Trump surprised the world with tariffs on over 90 different countries that he claimed were enacted as a correction for historically unfair trade practices directed towards the United States. It would be quicker to list the countries left off Trump’s tariff list than all those included that day. Notably, many of the countries excluded from the Liberation Day tariffs were excluded only because previous tariffs had already been levied on them. Examples of this include the 25% tariff placed on Mexico and Canada for allowing fentanyl across the border, or countries like China, Russia, and Cuba that already have high levels of economic sanctions and tariffs placed on them due to longstanding international political disputes with those nations.
📉 While we don’t know the long-term impact of the Liberation Day yet, markets reacted quickly to the news of the tariffs with the single largest drop in the stock market since the COVID-19 lockdowns at the end of the first Trump administration. The market quickly shed 15% over the next four days and, while it has recovered somewhat, it still remains significantly down from highs recorded earlier this year.
Why Governments Use Tariffs (Despite the Downsides)
So, if tariffs raise prices and disrupt trade, why do countries keep using them?
Here are a few key reasons:
1. Protecting Domestic Jobs and Industries
Tariffs can help fledgling or strategically important industries survive competition from larger foreign rivals. This is especially important in politically sensitive sectors like steel, agriculture, and textiles.
2. Retaliation and Leverage
Tariffs can be used as a negotiating tool in trade disputes. Imposing or threatening tariffs gives a country leverage in talks over intellectual property, labor standards, or market access.
3. National Security
In rare cases, tariffs are justified on national security grounds – for example, ensuring a stable domestic supply of materials like steel, military equipment, or semiconductors.
4. Revenue Generation
For developing countries, tariffs still serve as a significant source of government revenue, particularly where collecting income or corporate taxes is more difficult.
Notable Tariffs in U.S. History and Why They Were Enacted
Here’s a quick look at some of the most significant tariffs in U.S. history:
| Tariff | Year | Purpose | Outcome |
|---|---|---|---|
| Tariff Act of 1789 | 1789 | Revenue generation, protect U.S. industries | Set foundation for federal budget |
| Tariff of Abominations | 1828 | Protect Northern manufacturers | Sparked Southern opposition and nullification crisis |
| Morrill Tariff | 1861 | Fund Civil War, protect industry | Increased federal revenue |
| Smoot-Hawley Tariff | 1930 | Protect jobs during Great Depression | Contributed to global economic collapse |
| Trump Tariffs on China | 2018–2020 | Address trade imbalance, IP theft | Raised prices, prompted retaliation |
Each of these tariffs was enacted in a specific political and economic context – but all had broad and lasting effects on the economy, trade relations, and consumers.
Are Tariffs Good or Bad?
Like most tools in economics, tariffs are neither inherently good nor bad, they’re effective in some contexts and harmful in others.
✅ Potential Benefits:
- Shield domestic industries from unfair competition
- Create jobs in protected sectors
- Provide negotiating leverage in trade deals
- Raise government revenue (in developing nations)
❌ Potential Drawbacks:
- Raise consumer prices
- Prompt retaliation from trade partners
- Hurt exporters by shrinking global markets
- Reduce economic efficiency by distorting prices
In general, free trade advocates argue that open markets lead to lower prices, more choices, and greater overall prosperity, while protectionists argue that unchecked globalization can hollow out domestic industries.
Now, next time someone says, “It’s just a tariff,” you’ll know it’s a lot more than that. It’s an invisible tax, a political weapon, and a window into how countries balance cooperation and competition in the modern economy. To hear what other economic, business, and political leaders have said about tariffs check out this article here.