What are tariffs and what could they mean for you? What to know as Trump wins

President-elect Donald Trump has remained consistent on his plans for an economic revival, anchored in large part by something he has brought up again and again: tariffs.

What are they and what has Trump proposed?

Here’s an explainer:

What is a tariff?

Tariffs are taxes imposed on goods that are imported from another country.

In the U.S., tariffs aim to discourage companies importing goods from places like China by making them pay more for the items they are trying ship in.

What does Trump plan?

Trump’s posture on international trade is to distrust world markets as harmful to American interests. He proposes tariffs of 10% to 20% on foreign goods — and in some speeches has mentioned even higher percentages.

He promises to reinstitute an August 2020 executive order requiring that the Food and Drug Administration buy “essential” medications only from U.S. companies. He pledges to block purchases of “any vital infrastructure” in the U.S. by Chinese buyers.

As a billionaire who made his name in real estate, the former president has argued for higher tariffs to bring more factories into the United States and tax cuts for the wealthy and corporations on the premise that will lead to more investment.

“We will give our companies the lowest taxes, the lowest energy cost, the lowest regulatory burdens, and free access to the best and biggest market on the planet,” Trump said at a rally just before the election.

In an interview with Bloomberg Editor-in-Chief John Micklethwait for the Economic Club of Chicago last month, Trump told the room “tariff” is “the most beautiful word in the dictionary.”

“It’s my favorite word. It needs a public relations firm to help it, but it’s the most beautiful word,” he said.

He argued that his plans for implementing, in some cases, tariffs up to 100% will bring companies back to the U.S. Micklethwait, however, raised questions over the loss of jobs for companies relying on China for their business and trade, saying, “you could be plunging America into the biggest trade war.”

“There are a lot of jobs that rely on foreigners coming here. You’re going to basically stop trade with China. You’re talking about 60% tariffs on that. You’re talking, as you said, 100%, 200% on things you don’t really like. You’re also talking about 10-20% tariffs on the rest of the world. That is going to have a serious effect on the overall economy,” Micklethwait said. “And yes, you’re going to find some people who will gain from individual tariffs. The overall effect could be massive.”

“I agree it’s going to have a massive effect – a positive effect,” Trump replied.

Trump also faced questions over the impact such tariffs could have on foreign policy.

“You’re talking about slamming allies with 30%, 20% tariffs. Isn’t this time you’re going to end up trying to rally the West and you’re dividing it instead? Isn’t that the real problem with tariffs, even beyond all the problems to the economy, where you keep on bringing up these individual examples, but the overall effect is going to be dramatic,” Micklethwait said.

China Tariffs

Perhaps the biggest consequence will be for China. If Trump stays true to his campaign promises, he threatens to slap blanket 60% tariffs on all Chinese exports to the U.S.

Tariffs like that would be a blow to China’s already unstable economy, which is suffering from high youth unemployment, a lengthy property slump and government debt. A 60% duty on Chinese imports could shave off 2.5 percentage points, or about half, of China’s projected economic growth, according to an analysis published earlier this year by UBS.

During Trump’s previous term in office, the U.S. imposed tariffs on more than $360 billion of Chinese products. That brought Beijing to the negotiating table, and in 2020 the two sides signed a trade deal in which China committed to improve intellectual property rights and buy an extra $200 billion of American goods. A research group a couple of years later showed China had bought essentially none of the goods it had promised.

President Joe Biden retained most of those tariffs and added fresh duties this year on imports including steel, solar cells and electric vehicles.

Like last time, tariffs could serve as a tool to force Beijing back to the negotiating table, said Henry Gao, a law professor at Singapore Management University who focuses on international trade.

“Given the weak economic position of China this time, I think there will be more willingness to talk,” he said. “Thus, while the tariff might have some short-term effects on the Chinese economy, the situation might improve once they reach a deal.”

What would tariffs mean for the American people?

According to the Tax Foundation, while tariffs “do place an economic burden on foreign exporters, the costs are often borne by consumers in the country that is imposing them.”

“Tariffs directly increase the cost of domestic sales by artificially increasing the price on imports,” the organization stated.

Experts agree.

“Ultimately, the cost of tariffs will be paid by us, the consumer,” George Ball, chairman of investment management firm Sanders Morris, told CNBC. “They’ll be buying things at higher prices than they otherwise would.”

The true impact or rise of costs remains to be seen, however.

Clark Bellin, chief investment officer at Bellwether Wealth, said the relationship isn’t as simple as some Democrats have suggested, “especially when you throw the inflation we’ve been having into the mix.”

The Peterson Institute for International Economics estimates the yearly cost of a 20% universal tariff, paired with a 60% tariff on China, would cost a typical U.S. household $2,600 per year.

Meanwhile, The Tax Foundation estimates a 10% universal tariff would increase taxes on U.S. households by an average of $1,253 in 2025, and a 20% tariff would increases costs by $2,045.

A report from the National Retail Federation estimated up to $7,600 in additional costs per U.S. household annually if Trump’s tariffs are imposed.

“While impacts as a share of the U.S. economy may seem small, it is a different story for individual products, including many consumer goods whose prices already are inflated by extra tariffs on Chinese imports,” the report stated.

Trump has argued, however, that tariffs will prompt other countries to negotiate better trade deals and motivate them to lower their own tariffs on U.S. imports.