Trump’s Tariffs: What Are They and Why Do They Matter?

You’ve likely heard about the trade tensions between Canada, Mexico, and the United States, three neighbors locked in a high-stakes economic standoff. For years, tariffs barely registered with most Americans or Canadians.

That changed in early 2025, when the Trump administration launched sweeping duties aimed at reshaping North American trade. Trump’s tariffs, his administration argues, are essential to protecting US jobs and addressing what they consider unfair competition. They were also framed as a way to pressure neighboring countries to cooperate on border security, curb illegal immigration, and cut the flow of illegal substances into American communities.

The measures included a 25% duty on most Canadian goods and 10% on energy, along with steep penalties on steel and aluminum. Ottawa retaliated with counter-tariffs on billions of dollars’ worth of US goods, from alcohol to agricultural exports to machinery.

Canadians soon saw familiar brands vanish from store shelves. At the same time, in the US, consumers faced fewer shortages. Still, the threat of energy disruptions loomed in states like Minnesota, New York, and Michigan, adding a new layer of pressure to an already volatile climate.

So what exactly is a tariff, and why do they carry such disruptive power?

What is a Tariff?

No country can produce everything its people want or need. Nations trade to fill those gaps, importing food, raw materials, or finished goods that aren’t available or cost-effective at home. But trade isn’t always smooth. Politics, competition, and shifting alliances often create friction between partners.

One tool governments use in those disputes is the tariff. A tariff is simply a tax placed on imported goods and services. By raising the cost of foreign products, tariffs can serve multiple purposes: they generate revenue, protect local industries from cheaper competition, or pressure a trading partner during negotiations.

How Do Tariffs Work?

Think of a tariff as a toll at the border. When goods cross into a country, the government can charge a fee that makes those imports more expensive. The higher price discourages shoppers and businesses from choosing foreign products, giving local producers a built-in edge.

The effect plays out in two directions. Exporters often see demand fall because their goods suddenly cost more in the foreign market. At the same time, buyers at home may absorb the extra cost if they still want the product. In either case, the tariff changes the trade flow by tilting the playing field.

Tariffs generally take two forms:

• Flat-rate charges — a government might add $50 to each imported smartphone, regardless of its original price.
• Percentage-based charges — instead of a fixed fee, the duty could be set at 8% of the item’s value, so higher-priced goods pay more.

Some policies combine both, known as compound tariffs—for example, $20 plus 5% of the item’s value. But the goal is always the same: to make imports less attractive.

Why Governments Impose Tariffs

Tariffs aren’t just taxes. Leaders use them for different strategic goals, from economics to politics.

Purpose	What It Means	Example
Protect jobs & industries	Shields local producers from cheaper imports, often in sectors like steel or farming.	US steel duties under Trump in 2018.
Raise money	Customs duties flow straight into government budgets.	Tariff revenues in 2019 topped $70B. With the new duties imposed in 2025, US tariff collections have surged again.
Foreign policy leverage	Tariffs can pressure trading partners or signal political disapproval.	Higher duties on Russian goods after the Ukraine invasion.
Consumer safety	Makes risky or poorly regulated imports too costly to buy, steering consumers towards domestic alternatives.	Tariffs on unsafe products with toxic coatings.

Pros and Cons of Tariffs

Tariffs can deliver quick wins for governments, but they often come with longer-term costs. Here’s a snapshot of both sides:

Pros

• Revenue boost: Tariffs bring money directly into government budgets, easing pressure on taxpayers.
• Negotiating tool: They can be used to open or shape trade talks.
• Support national goals: Protects local businesses and jobs by giving them an edge over cheaper imports.
• Market stability: By controlling prices, tariffs can make markets more predictable for producers.

Cons

• Higher prices for consumers: With less competition, goods cost more.
• Reduced innovation: Domestic industries may grow complacent when shielded from global rivals.
• Regional imbalances: Policies that help one sector often hurt another, fueling discontent.
• Risk of trade wars: Retaliation from trading partners can spiral into damaging cycles that leave everyone worse off.

Bottom Line: Tariffs can protect industries and strengthen a government’s hand, but the gains are often short-term, and the costs, higher prices, weaker innovation, and trade conflicts, tend to pile up over time.

Tariffs can also produce unintended effects, such as benefiting some regions while hurting others or creating inefficiencies by reducing competition.

Free Trade vs. Tariffs

Tariffs and free trade sit at opposite ends of the trade-policy spectrum. A tariff restricts imports by making foreign goods more expensive. Free trade, by contrast, removes or lowers barriers, letting goods and services flow across borders with minimal interference.

Approach	What It Does	Upside	Downside
Free trade	Lowers barriers so goods and services move freely.	Cheaper prices, bigger markets, global supply chains.	Local industries and jobs can suffer from foreign competition.
Tariffs	Raises import costs to favor domestic producers.	Shields industries, creates leverage in negotiations, generates revenue.	Higher consumer prices, risk of retaliation, slower growth.

How Tariffs Affect Americans at Home and Abroad

Tariffs don’t just make imports more expensive at the checkout line. They also provoke retaliation abroad, which lands squarely on US exporters. Farmers and manufacturers are often the first to feel the squeeze when foreign governments push back.

The 2025 clash with Canada proved this point. For businesses that depend on Canadian buyers, the result has been rising costs, shrinking demand, and tighter margins.

Impact on Consumers and Expats

For US consumers, tariffs mean higher prices on everyday goods and, in some cases, fewer choices on store shelves. For American expats, tariffs can ripple into higher costs on imported US products abroad or tighter job markets if their industries rely on international trade.

In short, tariffs meant to protect American industries at home often end up hurting them abroad.

Final Thoughts

Tariffs have shaped global trade for centuries. Early European powers leaned on mercantilism, treating commerce as a zero-sum game and using tariffs to guard wealth and colonies. Later, thinkers like Adam Smith, author of The Wealth of Nations, and David Ricardo, who developed the theory of comparative advantage, argued that free trade and specialization could generate mutual prosperity instead of rivalry.

Tariffs are as old as trade itself, and they’re still with us today. Designed to protect industries and generate revenue, they also drive up prices and trigger retaliation that hurts American consumers and exporters alike. For expats, these shifts can raise living costs or complicate tax obligations, a reminder of why tools like MyExpatTaxes help Americans stay ahead in a changing global economy.

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