Tariffs Explained

What are tariffs and who actually pays them?

A tariff is a tax on imported goods, paid at the border by the American company bringing the product into the country. Not by the foreign government. Not by the foreign manufacturer. The U.S. importer writes the check to U.S. Customs, then raises prices to cover the cost.

This is what $1,745 looks like in a single household budget:

The word “tariff” comes from Arabic (ta’rifa, meaning notification of fees). Governments have used tariffs since the founding of the republic. For the first 125 years, tariffs funded most of the federal government. The income tax replaced that role in 1913. Today tariffs account for less than 2% of federal revenue while raising consumer prices across every income bracket.

How Tariffs Move from Port to Price Tag

A tariff does not stop at the border. It cascades through every business that touches the product before it reaches you. A 25% tariff on steel does not just raise the price of imported steel. It raises the price of American-made cars, appliances, and buildings that use any steel, because domestic producers raise prices to match.

1. Foreign Mill Ships coils at $800/ton ↓ U.S. importer pays 25% tariff ($200/ton) to Customs
2. U.S. Importer Passes $200/ton cost to buyers ↓ Domestic mills raise prices to match import price
3. Domestic Mill Raises prices $150-180/ton (price umbrella) ↓ Manufacturers pay more for all steel, imported or domestic
4. Manufacturer Absorbs higher input costs ↓ Raises retail prices or cuts workforce
5. Consumer Pays more for groceries, cars, appliances

Source: NBER / NY Fed research on tariff pass-through, 2025

Three mechanisms drive prices up beyond the tariff itself.

Direct pass-through. The importer adds the tariff to their cost and raises the wholesale price. In 2025, importers passed 94% of costs directly to buyers, compared to 80% in 2018. Companies stopped absorbing any of the hit.

The price umbrella. When imported steel costs more, domestic steel producers raise their prices to just below the new import price. They capture the margin without investing in production. U.S. Steel and Nucor both reported record profit margins during the 2025 tariff period.

Supply chain multiplication. A single tariff touches dozens of products downstream. A 25% tariff on aluminum raises the price of cans, car bodies, window frames, aircraft parts, and electrical wiring. Each manufacturer adds its own margin on top of the higher input cost.

Consumers Pay, Not Foreign Countries

The single most important fact about tariffs is who writes the check. The foreign country does not send money to the United States. The American importer pays U.S. Customs and Border Protection at the port of entry. That cost flows downstream to American consumers.

Share of tariff costs absorbed by companies (not passed to consumers)

Period	Value
2018	20%
2025	6%
Change	Companies stopped absorbing any cost

The National Bureau of Economic Research and the New York Federal Reserve both confirmed that nearly all tariff costs land on American buyers. The studies tracked actual price movements at the product level across thousands of goods.

The grocery bill tells the story. Tariffs added $2,500 per year to the average family’s food costs. Tomatoes rose 39.7%. Coffee rose 21%. Frozen fish rose 46.7%. These are not luxury items. They are Tuesday night dinner.

Low-income families pay the highest share. Tariffs are regressive. A family earning $30,000 spends a higher percentage of income on goods (food, clothing, appliances) than a family earning $300,000. The bottom 10% of earners lost $2,700 per year, a 7% income reduction, from combined tariff and policy impacts. The top 1% gained $47,500.

Who pays vs. who gains from tariffs and related tax policy:

Six Times Tariffs Failed: 1828 to 2026

Tariffs have a 200-year track record in the United States. The pattern repeats. A president or Congress raises tariffs to protect domestic industry or punish a trading partner. Prices rise. Trading partners retaliate. The protected industry benefits briefly while everyone else pays more. The tariffs get reversed, but the economic damage persists.

1. 1828 Tariff of Abominations 38-45% rates nearly split the Union
2. 1930 Smoot-Hawley deepens Depression Global trade fell 66%. Unemployment hit 25%.
3. 1971 Nixon 10% surcharge Abandoned after 4 months. Did not fix trade deficit.
4. 2002 Bush steel tariffs 200,000 jobs lost in steel-using industries
5. 2018 Trump 1.0 tariffs Trade deficit grew. Farm bailout cost $28B.
6. 2026 SCOTUS strikes down IEEPA tariffs 6-3 16.8% rate. $231B collected. Ruled unconstitutional.

Sources: Economic History Association, Bureau of Economic Analysis, CBO, Lawfare

200 Years of Tariff Failures: 1828 — Tariff of Abominations (38-45% rates nearly split the Union). 1930 — Smoot-Hawley deepens Depression (Global trade fell 66%. Unemployment hit 25%.). 1971 — Nixon 10% surcharge (Abandoned after 4 months. Did not fix trade deficit.). 2002 — Bush steel tariffs (200,000 jobs lost in steel-using industries). 2018 — Trump 1.0 tariffs (Trade deficit grew. Farm bailout cost $28B.). 2026 — SCOTUS strikes down IEEPA tariffs 6-3 (16.8% rate. $231B collected. Ruled unconstitutional.).

1828: Congress passed a 38-45% tariff to protect Northern manufacturers. Southern states called it the “Tariff of Abominations” because it raised prices on everything they imported while offering no benefit. South Carolina threatened secession. The crisis ended only when Congress cut the rates over 10 years.

1930: The Smoot-Hawley Tariff raised duties on over 20,000 imported goods during an economic downturn. Twenty-five countries retaliated. Global trade fell 66% between 1929 and 1934. More than 1,000 economists signed a letter warning Congress before the vote. Unemployment rose from 8% to 25%.

1971: President Nixon imposed a 10% surcharge on all imports to force currency realignment. Trading partners retaliated within weeks. The surcharge was dropped after four months. The trade deficit it was meant to fix did not improve.

2002: President Bush imposed steel tariffs of 8-30%. The International Trade Commission report showed steel-using industries lost 200,000 jobs, far more than the 10,000 jobs the tariffs protected. Bush reversed course after 20 months.

2018: The first round of Trump tariffs targeted steel, aluminum, and $350 billion in Chinese goods. The U.S. trade deficit with China initially grew. American farmers lost $14.9 billion in export markets to Chinese retaliation. Congress authorized a $28 billion farm bailout to offset the damage, more than double the auto industry bailout of 2009.

2026: The effective tariff rate reached 16.8%, the highest since Smoot-Hawley. The Supreme Court ruled 6-3 that IEEPA does not authorize tariffs. Over $200 billion in refunds was ordered to importers. Consumer prices did not decrease.

The 2025-2026 Tariff Rates: Highest in 90 Years

The 2025-2026 tariff regime was the broadest in modern history. It covered virtually every trading partner and product category simultaneously, unlike previous rounds that targeted one country or sector at a time.

The cost hit families from every direction at once. Previous tariff rounds affected one product category. This round affected groceries, cars, electronics, clothing, building materials, and medicine simultaneously. The Joint Economic Committee calculated $1,745 per family in direct tariff costs. Yale Budget Lab estimated $1,200-$1,500 if the tariffs became permanent.

Short-run consumer price increases by product category

Category	Value
Frozen fish (tilapia)	46.7%
Frozen hash browns	32.6%
Shoes & leather	23%
Apparel & clothing	21%
Electronics	18%
Consumer appliances	18%

Source: Yale Budget Lab, USDA. Short-run increases before substitution effects.

The housing sector absorbed a separate $17,500 per new home from tariffs on lumber, steel, and building materials. With a national housing shortage of 7.2 million units, making construction more expensive slowed the only solution to rising rents.

Manufacturing did not come back. The tariffs were sold as a way to rebuild American industry. Instead, 89,000 manufacturing jobs were lost between April 2025 and January 2026. In Michigan alone, 13,000 auto jobs disappeared as 25% tariffs on vehicles and parts hit cross-border supply chains. Small businesses with fewer than 10 employees lost 292,200 jobs nationwide, 4.5 times the pandemic-era rate.

Retaliatory Tariffs: $14.9 Billion in Farm Exports Lost

Trading partners do not absorb tariffs quietly. They retaliate with their own tariffs on American exports, targeting products from politically sensitive states and industries.

How retaliatory tariffs hit American exports:

China’s retaliation was surgical. Beijing placed tariffs on soybeans, corn, and pork, products grown in rural states that voted for the tariff policies. American soybean exports to China dropped 77%. Brazil filled the gap. By the time the tariffs were lifted, Brazilian farmers had built the infrastructure and relationships that American farmers lost.

The EU targeted bourbon, Harley-Davidson motorcycles, and Levi’s jeans. All three come from states with powerful senators. The targeting was deliberate: hit the products that generate political calls.

The trade deficit did not shrink. Tariffs are often justified as a tool to fix the trade deficit, the gap between what the U.S. imports and exports. The 2018-2019 tariffs did not reduce the overall trade deficit. It grew. Imports shifted from China to Vietnam, Thailand, and Mexico. The goods still came in. They just took a different route.

Protected Industries Gain, Everyone Else Pays

Tariffs create identifiable winners and diffuse losers. The winners are concentrated in a few industries. The losers are spread across the entire economy. This math explains why tariffs persist even when they cost more than they save.

Steel producers won. U.S. Steel and Nucor reported record profit margins during the tariff period. Their stock prices rose. Their workers saw modest wage gains. But the steel-using industries that employ 40 times more workers than steel production saw higher input costs, lower margins, and layoffs.

The 2002 steel tariffs illustrate the math. The International Trade Commission found that the tariffs protected approximately 10,000 steelworker jobs. The Trade Partnership estimated 200,000 jobs were lost in industries that use steel. Twenty jobs destroyed for every one protected.

Consumer confidence index

Period	Value
Jan 2025	98.2
May 2026	44.8
Change	Lowest reading ever recorded

Business investment froze. Private fixed investment fell 3.2% in Q1 2025 after tariff escalation. Foreign direct investment dropped 33.7% in a single quarter. When businesses cannot predict input costs, they stop building factories. The uncertainty costs 0.8-1.5% of GDP growth per year, separate from the direct tariff costs.

CEO earnings calls revealed the strategy. AutoZone’s CEO told investors: “If we get tariffs, we will pass those tariff costs back to the consumer. The industry has managed to transfer these expenses to the consumer. It’s been quite disciplined and logical.” Generac’s CEO called tariffs “great cover for increased pricing.”

SCOTUS Struck Them Down 6-3, Prices Stayed

In 2026, the Supreme Court ruled 6-3 that the International Emergency Economic Powers Act does not authorize tariffs. The decision, an exercise of judicial review over executive economic authority, ordered importers refunded over $200 billion. But the ruling exposed a structural problem: corporate prices are sticky upward.

Importers got refunds. Consumers did not. The Court ordered refunds to importers, the companies that paid U.S. Customs. No mechanism existed to pass those refunds to the consumers who actually bore the cost through higher prices. Companies kept prices elevated and pocketed the refund as profit.

The tariff dividend never arrived. During the tariff period, the administration promised $2,000 tariff dividend checks to every household, funded by tariff revenue. Treasury Secretary Bessent said “we will see.” No legislation was introduced. No checks were sent. The $287 billion in collected revenue went to general spending.

S&P 500 companies maintained profit margins of 13.4% in Q1 2026, more than double the 1990-2019 average of 6.3%. Stock buybacks hit a projected $1.1 trillion for 2025. The money extracted from consumers during the tariff period did not return when the legal basis disappeared.

Not every tariff is a mistake

Tariffs are a tool, not an inherently destructive one. The question is whether a specific tariff achieves its stated goal at an acceptable cost. Some do.

• National security exceptions have a case. The U.S. depends on Taiwan for 92% of advanced semiconductors. A tariff or subsidy that builds domestic chip production capacity addresses a genuine vulnerability. The CHIPS Act took the subsidy approach rather than tariffs, and TSMC is now building fabs in Arizona.
• Anti-dumping tariffs protect against predatory pricing. When a foreign government subsidizes its producers to sell below cost and destroy competitors, a targeted tariff can prevent the elimination of domestic capacity. The WTO allows this, and the U.S. has used it successfully against Chinese solar panel dumping.
• Infant industry protection has historical precedents. The U.S. used tariffs to protect early manufacturing in the 1800s. South Korea, Japan, and China all used tariffs during industrialization. The key difference: those tariffs were temporary, targeted, and paired with investment in the protected sector.
• Broad, permanent tariffs on consumer goods have no successful precedent. Every major episode of across-the-board tariffs produced higher prices, retaliation, job losses in downstream industries, and eventual reversal. The 2025-2026 regime followed this pattern exactly.
• The free trade alternative has costs too. NAFTA displaced an estimated 700,000 manufacturing jobs. Communities built around single factories were devastated. Trade adjustment assistance programs were underfunded. The policy question is how to manage the transition, not whether trade has winners and losers.

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Frequently asked questions

Who pays tariffs, the foreign country or American consumers? American importers pay U.S. Customs at the port of entry. In 2025, importers passed 94% of costs directly to consumers through higher prices. The NBER and NY Federal Reserve confirmed this through product-level price tracking. Foreign governments do not write checks to the United States.

Do tariffs bring manufacturing jobs back? The 2025-2026 tariffs lost 89,000 manufacturing jobs and 292,200 small business jobs. The 2002 Bush steel tariffs lost 200,000 jobs in steel-using industries while protecting 10,000. The historical pattern shows tariffs protect a small number of jobs in the targeted industry while destroying more jobs downstream.

What are retaliatory tariffs? When the U.S. raises tariffs, trading partners impose their own tariffs on American exports. China targeted soybeans (down 77%) and corn (down 88%). The EU targeted bourbon, motorcycles, and jeans. Retaliation is strategic, hitting products from politically important states to maximize pressure.

What did the Supreme Court rule about tariffs? The Court ruled 6-3 in 2026 that IEEPA (International Emergency Economic Powers Act) does not authorize tariffs. The decision ordered over $200 billion in refunds to importers. Consumer prices did not decrease because no mechanism required companies to pass refunds to buyers.

What is the trade deficit and do tariffs fix it? The trade deficit is the gap between imports and exports. When the U.S. buys more from the world than it sells, the deficit grows. The 2018-2019 tariffs did not shrink the overall trade deficit. Imports shifted from China to Vietnam and Mexico. The goods still entered, just through different countries.

How high are current U.S. tariff rates? After the Supreme Court struck down IEEPA tariffs, remaining rates include 25% on steel and aluminum, and targeted rates on specific countries. The effective rate peaked at 16.8% in 2025, the highest since 1935. Post-ruling rates are substantially lower but not zero.

What you can do

1. Tell your representative to oppose broad consumer tariffs. The Joint Economic Committee documented $1,745 per family in costs. The NBER confirmed 94% lands on consumers. Your representative needs to hear that you are paying the price. Use the letter and call script below.

2. Demand tariff revenue accountability. $287 billion was collected in calendar 2025. The promised $2,000 dividend checks were never introduced as legislation. Ask where the money went and what constituents received.

3. Support the Trade Review Act. This legislation would require congressional approval for tariffs above 5% on any single country, restoring the constitutional power to regulate commerce that Article I assigns to Congress.

4. Track prices in your own household. The Yale Budget Lab and Tax Foundation both publish household cost calculators. When your grocery bill rises 40% on specific items, that is tariff pass-through you can document. Documented constituent stories influence votes more than aggregate statistics.

5. Follow the Cost of Living series for ongoing tariff impact tracking. Each brief traces a specific cost from the policy decision to your kitchen table, with letters for every major development.