Since reentering the office, President Donald Trump has announced a barrage of tariffs to try to rewire the global economy. The trade actions have taken effect in fits and starts, resulting in wild swings in markets and fresh tension among some of America’s closest trading partners.
What’s the latest?
A legal back-and-forth has ensued over Trump’s tariffs.
On Wednesday, a federal judicial panel ruled that many of the large-scale tariffs were issued illegally, including those targeting China, Canada, and Mexico. The next day, a federal appeals court temporarily preserved many of the levies.
Wednesday’s ruling would have forced a wind-down of tariffs Trump had enacted under the International Emergency Economic Powers Act, a 1977 law. Thursday’s appellate decision, however, is temporary and does not end the legal matter. Instead, it allows the panel’s judges to consider the government’s request for a longer delay.
A defeat in court could severely undercut the Trump administration’s capacity to wage a global trade war.
Who has been targeted?
In April, Trump rolled out punishing tariffs on nearly 60 U.S. trading partners before abruptly reversing course for 90 days for every country except China to give governments time to make deals. On May 12, he temporarily paused the China tariffs. On Friday, he appeared to revive his global trade war by threatening steeper tariffs on the European Union; by Sunday, he had backed down.
European Union:
On Sunday, Trump said he would delay a 50% tariff on goods from the European Union until July 9. A couple of days earlier, he said that discussions with the European Union were “going nowhere” and that steep tariffs would take effect in a week. The climb-down came after a weekend call with Ursula von der Leyen, president of the European Commission, who said that trade talks would advance “swiftly and decisively.”
Apple:
Trump also targeted the CEO of Apple, Tim Cook, on Friday. He said he had told Cook he expected iPhones sold in the United States to be “manufactured and built in the United States, not India or anyplace else,” or face a 25% tariff.
China:
The United States and China, on May 12, said they had reached an agreement to reduce the tariffs they have imposed on each other for 90 days while they try to negotiate a trade deal.
The announcement came after a weekend of high-stakes negotiations between officials from the two countries in Switzerland.
Many Chinese imports entering the United States had been subject to at least a 145% tariff — essentially a tax equal to 1 1/2 times the cost of the product itself. That will now be 30%. For its part, China agreed to lower the tariffs it had put on imports from the United States to 10%, from 125%. Separately, Trump eliminated a long-standing exception that allowed many relatively inexpensive goods from China to enter the country duty-free. Such imports now face a 54% tariff or a $100 flat fee.
Britain:
Last month, Trump imposed the same 10% tariff on Britain that he put on other countries. Cars shipped to the United States from Britain face a 27.5% tariff, and British steel is subjected to an import duty of 25%.
In early May, Trump unveiled a preliminary agreement with Britain that would pare back these tariffs. Under the terms of the deal, Britain would be allowed to send 100,000 vehicles to the United States under a tariff of 10%, and U.S. tariffs on steel would fall to zero.
The 10% levy in place for all British exports would remain in place, though the British government said it was still pushing to bring it down.
Although Britain is not one of America’s biggest trading partners, Trump said the agreement would be the first of many. U.S. officials have also been negotiating with India, Israel, Japan, South Korea, and Vietnam, among other trading partners.
Why is Trump using tariffs?
Trump’s point of view appears to be that any trade deficit — the value of goods the United States imports from a country, minus what it sends as exports — is bad. He has long described bilateral trade deficits as examples of America being “ripped off” or “subsidizing” other countries.
The president and his advisers say their goal is to make the tariffs so painful that they force companies to make their products in the United States. They argue that this will create more American jobs and push up wages.
But Trump has also described tariffs as an all-purpose tool that will force Canada, Mexico, and China to crack down on the flow of drugs and migrants coming into the United States. The president also maintains that tariffs will rake in huge sums of revenue that the government can use to pay for domestic tax cuts.
Economists say that tariffs cannot simultaneously achieve all of the goals that Trump has set. Many of his aims contradict one another. The same tariffs that are supposed to increase U.S. manufacturing are also making life painful for U.S. manufacturers by disrupting their supply chains and raising the cost of their raw materials.
“All of these tariffs are internally inconsistent with each other,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics, a Washington think tank. “So what is the real priority? Because you can’t have all those things happen at once.”
Who pays for tariffs, and where does the money go?
A tariff is a government surcharge on products imported from other countries.
Tariffs are paid by the companies that import the goods. The revenue from U.S. tariffs is paid by U.S. importers to the U.S. Treasury Department.
For example, if Walmart imports a $100 shoe from Vietnam, which faces a 46% tariff, Walmart will owe $46.00 in tariffs to the U.S. government.
What happens next?
— Walmart could try to force the cost onto the Vietnamese shoe manufacturer by telling it that Walmart will pay less for the product.
— Walmart could cut into its profit margins and absorb the cost of the tariff.
— Walmart could raise the price of the shoes at its stores.
— Or some combination of the above.
Earlier in May, Walmart’s CEO cautioned that tariffs would push the company to start raising prices soon, and refrained from projecting profits for its current quarter. Trump, in turn, scolded the retailer on social media, telling it to “EAT THE TARIFFS” and keep prices down.
How have companies responded?
One way to understand how companies are reacting to the tariffs is to think about Christmas.
The production of toys, Christmas trees, and decorations is usually in full swing by now. It takes four to five months to manufacture, package, and ship products to the United States. And factories in China produce nearly 80% of all toys and 90% of Christmas goods sold in America.
Toy makers, children’s shops, and specialty retailers have recently begun pausing orders for the winter holidays as the import taxes cascade through supply chains.
“If we don’t start production soon, there’s a high probability of a toy shortage this holiday season,” said Greg Ahearn, CEO of the Toy Association, a U.S. industry group representing 850 toy manufacturers.
Mattel, the U.S. toy company and maker of Barbies, recently said it would raise prices on U.S. toys because of Trump’s tariffs on imports from China.
How could tariffs affect consumer prices?
It’s hard to imagine an American home without Chinese products. Many essentials are imported almost entirely from China, and with new tariffs, they’re likely to become more expensive.
The New York Times analyzed import data to show where Americans may see product shortages, fewer choices, and price increases.
What happens if shelves are emptier? Sacrifice for your country, the president says.
“You know, somebody said, ‘Oh, the shelves are going to be open,’” Trump recently said. “Well, maybe the children will have two dolls instead of 30 dolls, you know? And maybe the two dolls will cost a couple of bucks more than they would normally.”
Trump’s tariffs target countries that supply a wide variety of goods to the United States. In some cases, prices have already started to go up. But for American families, the full effect of the new policies is still to come, but they are likely to result in higher prices at grocery stores, car dealerships, electronics retailers, and clothing outlets.
This article originally appeared in The New York Times.
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