A tariff is a tax on imported goods. When a U.S. importer brings goods across the border, Customs and Border Protection assesses the tariff based on the type of goods and their country of origin. The importer pays the tax — not the foreign manufacturer or foreign government. What happens next — who ultimately bears the cost — is where the economics get complicated and where political claims often diverge from economic mechanics.
Basic Mechanics
A tariff is most commonly expressed as a percentage of the value of the imported good — an ad valorem tariff. A 25% tariff on a product worth $1,000 means the importer pays $250 to Customs at the border. That payment goes into U.S. federal revenue, not to the domestic industry being protected. Other forms include specific tariffs (a fixed dollar amount per unit, such as $X per ton of steel) and compound tariffs (a combination of both).
Who Actually Pays
This is the most consistently misunderstood aspect of tariffs. The U.S. importer writes the check. What happens after varies:
- The importer passes the full cost to buyers through higher prices — the most common outcome when the domestic market lacks a cheap alternative
- The importer absorbs some of the cost by accepting lower profit margins — common when competition prevents full pass-through
- The foreign exporter cuts their price to remain competitive in the U.S. market — how much depends on their own competitive position and how price-sensitive the market is
- The importer switches suppliers to a country not subject to the tariff — trade diversion, common after country-specific tariffs
Research on the 2018–2019 tariffs on Chinese goods found that nearly all of the cost was borne by U.S. importers and consumers, not by Chinese exporters. This result reflects the structure of those specific markets; the extent to which foreign exporters absorb tariffs varies by product and competitive dynamics.
Why Tariffs Are Used
- Protecting domestic industries: A tariff raises the price of competing imports, giving domestic producers a price advantage. This protects jobs in the targeted sector — but raises costs for downstream industries that buy those goods as inputs. A steel tariff protects steel workers; it raises costs for auto manufacturers, appliance makers, and construction companies that buy steel
- National security: The government can restrict imports that affect critical defense manufacturing
- Retaliation and negotiation leverage: Tariffs can be used to pressure a trading partner to change trade practices or reach an agreement
- Revenue: Before the income tax, tariffs were a primary federal revenue source. In the modern era, tariff revenue is a small share of federal income
The Legal Authorities
U.S. tariffs can be applied through several statutory authorities with different triggers:
- Section 301 (Trade Act of 1974) — Allows tariffs in response to unfair trade practices by a foreign country. Used for the 2018–2019 tariffs on Chinese goods
- Section 232 (Trade Expansion Act of 1962) — Allows tariffs when imports are determined to threaten national security. Used for the 2018 steel and aluminum tariffs
- Section 201 (Trade Act of 1974) — Allows temporary tariffs on goods causing serious injury to a domestic industry, regardless of unfair practices, following an International Trade Commission finding
- IEEPA (International Emergency Economic Powers Act) — A broad emergency authority invoked in 2025 for sweeping tariff actions; its use for tariffs is subject to ongoing legal challenges
Trade Wars and Retaliation
When Country A imposes tariffs on Country B’s goods, Country B typically retaliates with tariffs on Country A’s goods — usually targeting politically sensitive exports. In 2018–2019, China retaliated against U.S. tariffs by imposing tariffs on U.S. agricultural exports — soybeans, pork, and other farm goods — targeting states dependent on farm exports to China. The retaliation dynamic means tariffs often create costs on both sides: the protected domestic industry gains; downstream industries and export industries pay.
The Global Trade Framework
After World War II, the General Agreement on Tariffs and Trade (GATT) established a system for gradually reducing tariffs through negotiated rounds. This was replaced by the World Trade Organization (WTO) in 1995. WTO rules establish a “most favored nation” principle — a tariff applied to one WTO member should apply to all, with exceptions for free trade agreements and specific safeguards. The 2018 and 2025 rounds of tariffs broke from decades of WTO-based trade policy in applying high tariffs to specific countries or categories of goods on national security or emergency grounds.
The Bottom Line
A tariff is a tax on imported goods paid by the U.S. importer, not the foreign exporter. Whether that cost gets passed to consumers, absorbed by importers, or offset by foreign exporters cutting prices depends on market structure — and usually some combination of all three happens. Tariffs protect targeted domestic industries at a cost to downstream buyers and consumers. Retaliation is the standard response from trading partners, often directed at politically sensitive exports. The legal authority, scope, and political justification for tariffs have varied significantly across different administrations and episodes.