What Are Tariffs ? | Council on Foreign Relations

cfr.org · Feb 20, 2026 · Collected from GDELT

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President Donald Trump has begun his second term imposing tariffs against some of the United States’ leading trading partners to correct what he says are decades of imbalances harmful to the U.S. economy. Here’s how these taxes work. Tariffs are a form of tax applied on imports from other countries. Economists say the costs are largely passed on to consumers. Countries have used them to protect domestic industries, such as agriculture and renewable energy, as well as to retaliate against other states’ unfair trade practices. In his second term, President Trump is again wielding tariffs in pursuit of goals such as stopping drug trafficking, competing with China, and reducing the U.S. trade deficit. IntroductionCountries around the world have long used tariffs, a tax on imports, to prop up homegrown industries by inducing citizens to buy goods produced domestically. After World War II, however, tariffs largely fell out of favor in advanced economies because they often lead to reduced trade, higher prices for consumers, and retaliation from abroad. In his first term, President Donald Trump broke with this economic orthodoxy and imposed tariffs on hundreds of billions of dollars worth of imported goods from China and other countries to try to combat alleged unfair trade practices, reduce the U.S. trade deficit, and boost domestic manufacturing in the name of national security and U.S. economic competitiveness. President Joe Biden largely left these tariffs in place and wielded his own, helping to shape an emerging bipartisan revival of their use. In his second term, Trump is again relying on tariffs to achieve an even wider array of goals. He has imposed sweeping tariffs on Canada, China, and Mexico, citing the countries’ lack of immigration enforcement and failure to control the flow of illegal fentanyl into the United States. In an effort to promote domestic manufacturing, his administration has also announced duties on all imports of autos and certain auto parts—which could significantly hurt European carmakers. The raft of new tariffs comes even as many economists continue to warn that their use has significant downsides.What is a tariff?A tariff is a tax imposed on foreign-made goods, paid by the importing business to its home country’s government. The most common kind of tariffs are ad valorem, which are levied as a fixed percentage of the value of the imports. There are also “specific tariffs,” which are charged as a fixed amount on each imported good (for example, $2 per shirt) and “tariff-rate quotas,” which are tariffs that kick in or rise significantly after a certain amount of imports is reached (e.g., fifty thousand tons of sugar).Tariffs can serve several goals. Like all taxes, they provide a modest source of government revenue. Several countries have also used tariffs to help fledgling industries at home, hoping to shelter local firms from foreign competitors. Some tariffs are also meant to address unfair practices that other countries have used to make their exports artificially cheap.Who uses tariffs?Almost every country imposes some tariffs. In general, wealthy countries maintain low tariffs compared to developing countries. There are several reasons why: developing countries might have more fragile industries that they wish to protect, or they might have fewer sources of government revenue. The United States, for instance, maintained high tariffs for decades, until income taxes supplanted tariffs as the most important source of revenue in the 1930s. After World War II, tariffs continued to decline as the United States emphasized trade expansion as a central plank of its global strategy.The Constitution grants Congress the power “to regulate commerce with foreign nations, and among the several states,” which it used for more than a century to impose tariffs. Perhaps most infamously, Congress raised close to nine hundred separate tariffs with the 1930 Smoot-Hawley Tariff Act, which many economists say worsened the Great Depression. But over the past ninety years, Congress has delegated more and more trade authority to the executive branch, in part a response to Smoot-Hawley.Several pieces of legislation underline this trend. The Reciprocal Trade Agreements Act of 1934 gave President Franklin D. Roosevelt the power to negotiate tariff-cutting trade deals with other countries. This was followed by the Trade Expansion Act of 1962, which granted the president authority to negotiate tariff reductions of up to 80 percent. The Trade Act of 1974 [PDF] allowed the executive branch to strike trade deals—with negotiating objectives set by Congress—that were then subject to an unamendable up-or-down vote, known as fast-tracking. Both Democratic and Republican presidents have used this authority to lower tariffs and enter into a range of trade deals, including the agreement establishing the World Trade Organization (WTO). These laws give the president the power to raise tariffs if foreign countries are found to be engaged in unfair trading practices, or if imported goods are deemed to be threatening critical domestic industries and thus harming national security. They also allow the president to impose tariffs if domestic industries are “seriously injured” by import competition, even if there is no alleged foul play.Many presidents have exercised these powers, though Trump has done so to a far greater extent than most of his predecessors. In his first term, he imposed tariffs affecting hundreds of billions of dollars worth of goods from China and some U.S. allies, including members of the European Union (EU), and in the opening weeks of his second term he has further expanded their use. Biden, for his part, maintained tariffs on China and introduced several of his own while reining in tariffs on EU member countries.WTO members are supposed to keep their tariffs below an agreed level, or bound rate, which varies among countries. (Developing countries are generally permitted to have higher tariffs.) When a country wins a dispute at the WTO, it is often allowed to impose retaliatory tariffs to pressure the losing country to change its policies. Some experts say that the organization’s credibility has been damaged by Trump’s—and then Biden’s—decisions to bypass the WTO and unilaterally impose tariffs.What are the aims of tariffs?Tariffs in most cases are intended to protect local industries by making imports more expensive and driving consumers to domestic producers. In the United States, several politically sensitive industries benefit from such tariffs: sugar producers have been protected by tariffs since 1789—two years after the signing of the U.S. constitution—and the auto industry has benefited from the so-called chicken tax since 1964, which places 25 percent tariffs on some pickup trucks. Additionally, tariffs are used to shield domestic industries from foreign countries’ unfair trading practices and, in some cases, for national security purposes. They can also be a tool of industrial policy.Tariffs are intended to protect local industries by making imports more expensive and driving consumers to domestic producers.Unfair trading practices. Some tariffs are meant to counteract specific measures taken by foreign countries or firms. For instance, the United States applies “countervailing duties” when another country subsidizes a domestic industry—allowing its exporters to sell products at a lower price than they would otherwise be able to in a free market—and thereby undercuts U.S. producers. Antidumping tariffs are applied when a U.S. firm proves that a foreign firm is selling products in the United States at lower prices than they charge at home, often in an attempt to drive competitors out of an industry before raising prices. In both of these cases, tariffs are meant as a penalty that allows domestic producers to compete as if the market had not been distorted. Critics, however, claim that even these tariffs are often disguised protectionist policies.In 2018, under the auspices of Section 301 of the Trade Act of 1974, the Office of the U.S. Trade Representative (USTR) issued a report [PDF] detailing how China’s intellectual property (IP) practices were “unreasonable or discriminatory, and burden or restrict U.S. commerce.” These included pressuring American companies to hand over their IP as a condition for doing business in China, known as forced technology transfer. On the basis of the report, Trump imposed a slew of tariffs during his first term, ultimately covering roughly $360 billion worth of imports from China. The Biden administration largely kept these tariffs in place. Biden also used Section 301 to impose new tariffs. In May 2024, he used the authority to target $18 billion worth of Chinese goods, including steel and aluminum, semiconductors, and electric vehicles and other green technologies—sectors that CFR expert Brad W. Setser says are viewed as “critical for America’s economic future.” Other analysts say the administration imposed these tariffs to protect the United States’ burgeoning green energy industry from a glut of subsidized Chinese products, in addition to supporting broader efforts by the Biden administration, including export controls, to stem the sale of the most advanced artificial intelligence (AI) technology to China.National security. In some strategic industries, often for goods with military uses, tariffs can be used to ensure a country does not rely on trade for its supply of critical products. Most notably, Section 232 of the Trade Expansion Act of 1962 allows the president to raise tariffs on certain goods for national security reasons. To curb China’s massive steel production, Trump used this law to raise tariffs on steel and aluminum imports from China, as well as from allies including Canada and the EU, leading to accusations that national security was being used as a pretext for protectionism. (Tariffs on Canada and Mexico were later dropped as part of the U.S.-Mex