Tariffs are taxes imposed by a government on imported goods or services from another country. They can be a fixed amount per unit or a percentage of the price. While tariffs generate revenue for the government, they also increase prices for consumers and can reduce the quantities of goods and services available. This can lead to lower incomes, reduced employment, and diminished economic output. Tariffs are often used to protect domestic industries from foreign competition by making imports more expensive.
The economic effects of tariffs are complex and can be both positive and negative. They can lead to retaliation from other countries, disrupting supply chains and potentially harming businesses that export goods. While tariffs aim to reduce trade deficits and encourage local manufacturing, they can also result in higher prices for consumers and increased costs for businesses importing raw materials. The distributional effects of tariffs tend to be regressive, burdening lower-income households more than higher-income ones. For example, tariffs imposed under the Trump administration are estimated to cost the average U.S. household $1,300 in 2026. As of February 2026, the U.S. average applied tariff rate is 13.5 percent, the highest since 1946.
