Wtf is up with the tariffs?

Learn about tariffs and Trump's new tariffs from someone who worked in international trade.

In this letter I will break down what tariffs are, the new tariffs and what raising them means for different people, why Trump decided to make this decision, and how it compares to similar events in history. I work in international trade, am a Certified Global Business Professional, and I graduated summa cum laude with a degree in economics, so I have the qualifications.

I. What tariffs are

In short, governments use tariffs to restrict imports. They increase the price of goods purchased from another country.

There are two main types of tariffs. A specific tariff is a fixed fee applied to a product, such as $200 on every imported vehicle. Governments calculate an ad-valorem tariff as a percentage of an item’s value, such as 5% of the total cost of an import. If an item costs $100, the ad-valorem tariff would result in a $5 fee. The tariffs implemented under the Trump Administration fall into the latter category: they are ad-valorem tariffs, set as percentages based on the value of the goods imported.

Governments impose tariffs for varied reasons but generally it is to protect domestic industries and consumers and raise revenues. The negative side effects of tariffs, though, is that they can make domestic industries less efficient or more expensive because there is less competition keeping them in check.

An attempt to pressure a rival country by raising tariffs could result in a trade war where targeted countries retaliate with their own tariffs, escalating tensions and harming global trade.

II. The new tariffs and what they mean for different people

On April 5, 2025, the United States imposed a 10% tariff on all imports coming from any country in the world. On April 9, 2025, country-specific tariffs targeting various countries with which the US has the largest trade deficits replaced that blanket rate.

The unique, individual tariffs are on 90 different countries, all higher than the 10% baseline. For example, there will be a 49% tariff on Cambodian products, 46% on Vietnamese, 54% on Chinese, and goods from the EU will be taxed at 20%.¹

The US has a free trade agreement with Canada and Mexico formerly known as the North American Free Trade Agreement (NAFTA) and now replaced with the United States-Mexico-Canada Agreement (USMCA) which eliminates trade barriers on products primarily made in the three countries. Any good coming from Mexico or Canada to the US that is not applicable under USMCA (e.g., a sizable portion of materials/manufacturing process did not occur within North America) will have a 25% tariff.

The backlash from countries who have historically been allies with the US has been swift. They feel betrayed.

“[It is] essential to act with purpose and force,” said Canada’s Prime Minister Mark Carney, regarding putting in place a reciprocal tariff.²

“The trade war has become a reality,” said South Korea’s acting president Han Duck-Soo.³

“This is not the fact of a friend,” said Australia’s Prime Minister Anthony Albanese.⁴

Japan said the tariffs were “extremely regrettable” and believe the 24% tariff on Japanese goods would violate the World Trade Organization and US-Japan agreements.⁵ Giorgia Meloni, Prime Minister of Italy, said the tariffs were “wrong” and was working to “prevent a trade war.”⁶

Canada and China have already announced they will increase their tariffs on US goods in response. China placed an 84% tariff on US imports and Trump responded with increasing the tariff on Chinese goods to 125%, effectively immediately.⁷ Canada has not yet announced what their response will be.

This strategy reminds me of the tit-for-tat strategy in Game Theory. If you have ever heard of the Prisoner’s Dilemma, that is one example of a game in Game Theory. As for the tit-for-tat method, it is just as the name suggests. If the first player is nice to the second player, the second will be nice back. If the first is mean, the second will be mean as well. In this game, cooperation yields the best long-term results. In the context of global trade, using the tit-for-tat method instead of developing a strategy with the other party creates trade wars, rising distrust between countries, and can increase costs and slow economic growth over the long run.⁸

As for the American people, economists predict tariffs will cause an increase prices as companies plan to pass on their rising prices to the consumers. Other companies, such as UK-based Jaguar Land Rover, plan to “pause” all shipments to the US which will in turn decrease supply and increase price as well.⁹

Goldman Sachs economists raised the odds of a recession to 45% stating, “The combination of larger tariffs, greater policy uncertainty, declining business and consumer confidence, and messaging from the administration indicating greater willingness to tolerate near-term economic weakness in pursuit of its policies increase downside risk.”¹⁰

A study by the International Monetary Fund (IMF) from 2019, which analyzed the first time Trump was in office and increased tariffs, found that US importers – not foreign exporters – primarily shouldered the cost of the tariffs on Chinese goods. Which means instead of hurting China, the tariffs hurt the American people. The study by IMF also states, “The tariffs have reduced trade between the US and China, but the bilateral trade deficit remains broadly unchanged.”¹¹

Emily Sundberg also published a really good piece speaking to consumer founders on how the tariffs would effect them:

"This is far more stressful than COVID."

*Wed, April 4, 2025, update*

Trump announced a 90-day pause on the new country-specific tariffs for “most countries” claiming that “more than 75 countries have called to negotiate a solution.”¹² The administration has not yet clarified which countries the pause covers.

Notably, the pause does not apply to China.

Since the announcement, the stock market has properly dug itself out of its grave.

III. Why Trump decided to make this decision

In speeches and posts via Truth Social, Trump has given assorted reasons as to why he is increasing tariffs. All of them are centered around two things: control and power. For him, tariffs are a blunt-force tool to prove dominance on the global stage. It is less about economic engineering and more about flexing muscle.

The official White House fact sheet, published on April 2, 2025, details three distinct reasons the Administration is putting these tariffs into place.

1. “Increase our competitive edge”

2. “Protect our sovereignty”

3. “Strengthen our national and economic security”¹³

They believe the tariffs will “seek to address the injustices of global trade, re-shore manufacturing, and drive economic growth for the American people.”

The overarching reason to impose the tariffs though is to get rid of the US’s trade deficit.

Trade deficit is calculated by a simple equation. If you subtract the total value of imports from the total value of exports, countries want this number to be positive. It means they are exporting (hence, making money) more than they are importing (hence, spending money). A positive number represents a trade surplus while a negative represents a trade deficit.

According to the same White House publication, “In 2024, [the United States’] trade deficit in good exceeded $1.2 trillion.”

This fact is a kick in the gut for an Administration that prides itself on the appearance of self-sufficiency.

However, what the Trump Administration fails to see is that there are two sides to the trade balance equation. Instead of reducing imports the Administration could instead enact a plan to increase exports. This would bring broader economic benefits though job creation, greater innovation, long-term growth, and would be supportive of the American people instead of asking them to shoulder the higher prices until other countries accede. This is particularly important in a world where the US has been consistently losing export sales. In 2000 the US had a 12% share of international sales while in 2023 that number fell to less than 9%.¹⁴

The government calculated the individualized tariff rates for countries such as Cambodia, China, and Japan by using this simple trade deficit/surplus equation to determine what percent tariff would eliminate the US’s goods trade deficit in each country. This is an extremely dangerous way to determine a policy. For example, the US placed the highest tariff on Cambodia which could severely undermine Cambodia’s development as a small and low-income country. The Cambodian factories and workers are already at the low end of the global income distribution and therefore they have no power in the game Trump is trying to play.

“The labor-intensive garment factories here in Cambodia simply cannot continue to operate with a 49% additional tariff. They can’t survive and are looking for alternatives,” said Casey Barnett, president of the American Chamber of Commerce in Cambodia.

“I can’t imagine that Americans want to sit down and sew a pair of sweatpants for long hours of the day.”¹⁵

Getting manufacturing back to the US is exactly what Trump wants, though. From 1997 to 2024, the US “lost around 5 million manufacturing jobs and experienced one of the largest drops in manufacturing employment history.”

IV. How it compares to similar events in history

The last time the US raised tariffs this dramatically was in 1930 when President Hoovers signed the Smoot-Hawley tariff bill. This bill represented one of the largest tariffs increases in history and Hoover signed it right as the US economy was starting to slip into the Great Depression. Other countries retaliated against Hoover by imposing tariffs on the US goods, as China and Canada are doing now in 2025, and world trade plummeted 66%.¹⁶ From 1929 to 1933 American exports declined from $5.2 billion to $1.7 billion concentrated on agricultural products. This caused many American farmers to default on their loans, affecting small rural banks.

The Nixon Administration imposed a tax of 10% on imports in 1971. In the announcement, Nixon stated: “This import tax is a temporary action. It isn't directed against any other country. It is an action to make certain that American products will not be at a disadvantage because of unfair exchange rates. When the unfair treatment is ended, the import tax will end as well.”

Over the next several months, Nixon negotiated with various countries to revalue their currencies and the taxes were dropped.¹⁷ The difference between the Nixon Administration and the Trump Administration is that Trump has not given other countries, at least publicly, a solution or plan of action to make his tariffs go away.

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Will foreign governments choose to appease Trump, offering up the concessions he demands just to see the tariffs lifted?

According to my former-Republican supervisor who has worked in international trade for 56 years,

“No, they’re not. Never.”

She also gives insight into what she is experiencing right now:

“Foreign buyers don’t want anything to do with us right now because they’re so mad at us.”

The last thing a country running a trade deficit can afford is to anger the very foreign buyers whose demand could help offset that imbalance through US exports.

Yours truly,

Calihan

I hope you enjoyed learning about international trade & tariffs. Housekeeping: if you see a fact that does not have a footnote, this means I mentioned the source already previously in the letter. Since I work as a researcher in my full-time job, you can rest assured all the sources provide accurate information.

1. https://www.bbc.com/news/articles/cn93e12rypgo

2. https://www.theglobeandmail.com/canada/article-live-updates-donald-trump-to-roll-out-new-tariffs-on-exports-from/

3. https://www.reuters.com/world/asia-pacific/south-koreas-acting-president-orders-emergency-measures-over-us-tariffs-2025-04-02/

4. https://www.reuters.com/world/australia-says-us-tariffs-not-act-friend-rules-out-reciprocal-move-2025-04-02/

5. https://www.yahoo.com/news/japan-calls-us-tariffs-extremely-054126042.html

6. https://www.thelocal.it/20250403/italian-pm-meloni-says-us-tariffs-on-eu-wrong

7. https://www.nbcnews.com/business/economy/trump-tariffs-president-announces-90-day-pause-what-to-know-rcna200463

8. https://www.investopedia.com/terms/t/tit-for-tat.asp

9. https://www.foxbusiness.com/politics/uk-based-jaguar-land-rover-puts-pause-shipments-us-amid-trump-tariffs

10. https://www.cbsnews.com/news/recession-risk-2025-goldman-sachs-jp-morgan-trump-tariffs/

11. https://www.imf.org/en/Blogs/Articles/2019/05/23/blog-the-impact-of-us-china-trade-tensions

12. https://www.wsj.com/livecoverage/stock-market-trump-tariffs-trade-war-04-09-25

13. https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/

14. https://www.cfr.org/article/tariffs-will-destroy-best-cure-trade-deficit

15. https://www.cnbc.com/2025/04/08/trump-tariffs-cambodia-manufacturing-reshoring-us.html

16. https://www.wita.org/blogs/did-the-smoot-hawley-tariff-cause-the-great-depression/

17. https://evmagazine.com/news/presidents-trump-and-nixon-a-tale-of-two-tariff-policies