I recently talked with a friend who does import-export business in the US. He has already paused imports from China and switched to transshipment or sourcing from other countries. His reason was simple: the US raised tariffs again, margins got crushed, and the business no longer works.
Influenced by that, I rushed to order a new Mac. I was afraid that if I waited and the tariffs landed, prices would rise and consumers like us would pay the price.
That sparked my curiosity: what are tariffs really? Why does the US like to talk about them? How much do they affect ordinary people?
Over the past few weeks I did some research and put together this beginner-friendly guide to help explain the logic behind tariffs.
1. What Is a Tariff? From “Toll” to Geopolitical Weapon
1. What is a tariff?
A tariff is essentially a tax imposed by the government on goods that cross borders. You can think of it as a modern “toll” or “protection fee.”
For example, if you buy a pair of sneakers from abroad, when the goods enter Chinese customs, the state collects a tax based on the declared price. That tax is a tariff.
2. What are its three main functions?
| Function | Explanation |
|---|---|
| Fiscal revenue | A key source of revenue for early states; still important for developing countries |
| Trade protection | Raises foreign goods prices to protect domestic industries |
| Political bargaining tool | Used to threaten or sanction other countries, e.g., the Trump-era “trade war” |
In modern economies, tariffs are no longer just “taxes” but comprehensive national policy tools with strong strategic attributes.
2. The US and Tariffs: A Tangled History
1. Tariffs are an “old friend” of the US
- In the early years of the US, the federal government had no personal income tax; almost all fiscal revenue came from tariffs.
- One trigger of the Civil War was the South’s opposition to high tariffs set by the North (protecting Northern industry and hurting Southern agriculture).
- So US reliance on tariffs did not begin with Trump; it is “in the family.”
2. Trump: Governing with tariffs
- Starting in 2018, the Trump administration launched four rounds of tariff actions against China.
- Covered more than $360 billion of Chinese exports.
- Average US tariffs on Chinese goods rose from 3.1% to 21% (source: Peterson Institute for International Economics, 2020).
3. Why can he “raise them at will”?
US law gives the president many unilateral tools to raise tariffs:
| Legal provision | Allows tariffs on the grounds of… |
|---|---|
| Section 301 | Retaliatory tariffs against trading partners |
| Section 232 | ”National security” tariffs (e.g., steel, aluminum) |
| IEEPA | In emergencies, tariffs, asset freezes, embargoes (used against fentanyl) |
3. A New Tariff Storm: Is It Just “Trump Showmanship”?
During the 2024 campaign, Trump proposed more aggressive tariff plans:
- Up to 125% tariffs on Chinese goods
- 25% tariffs on neighbors like Canada and Mexico, citing “drugs and illegal immigration”
- A global 10% baseline tariff, because “other countries take advantage”
These statements are partly campaign theatrics, but they also reflect that the US is treating tariffs as a normal national policy tool.
4. Why Does the US Keep Raising Tariffs? Surface vs Deep Logic
Surface-level reasons (official narrative)
| Reason | Example |
|---|---|
| Trade deficit is too large | China exports far more to the US than the US exports to China |
| Protect manufacturing jobs | Promote “manufacturing reshoring” |
| National security | Sensitive areas like chips, rare earths, fentanyl |
Deeper layer: the US “triple dilemma”
1. Triffin dilemma: side effects of dollar hegemony
- As the issuer of the “world currency,” the US must continuously export dollars (i.e., buy from other countries) to meet global dollar demand.
- This leads to long-term trade deficits and hollowing-out of manufacturing.
To maintain dollar hegemony, manufacturing must be sacrificed. This is the Triffin dilemma.
2. Rust Belt votes and populist demand
- Traditional manufacturing regions in the US Midwest have long faced high unemployment and economic stagnation.
- Trump’s base is working-class voters in these “Rust Belt” areas.
- “Tariffs on China” can trigger their sense of deprivation + nationalist emotions. It is a powerful political tool.
3. High fiscal deficits, need “hidden taxation”
- US national debt has exceeded $34 trillion (as of end-2024, source: US Treasury).
- Tariffs are not just trade policy but also a way to tax domestic consumers, increasing fiscal revenue without directly raising income taxes.
5. Do Tariffs Work? Highly Contested
| Pro arguments | Con arguments |
|---|---|
| Short-term protection for manufacturing | Distorts price mechanisms and reduces resource allocation efficiency |
| Increase government revenue | Burdens companies and consumers |
| A bargaining tool | Disrupts global supply chain cooperation |
According to a 2021 report from the US Congressional Budget Office (CBO), 93% of the tariff cost in the last trade war was borne by US firms and consumers, not Chinese exporters.
6. Who Pays for Tariffs? Consumers and Companies
Although factors like RMB depreciation can offset some impact in the short term, in the long run:
- US consumers bear most of the cost through higher prices;
- Companies in both China and the US must sacrifice on margins, capacity, and supply chains;
- Global trade becomes more uncertain, accelerating supply-chain “de-Chinaization.”
Tariffs are a weapon that “seems to hit others but actually hits yourself and the global market.”
7. Summary
The US keeps wielding tariffs. On the surface, it attacks opponents, but in essence it tries to use power to respond to its structural problems:
- Side effects of dollar hegemony
- Industrial hollowing and populism
- High deficits and debt-driven fiscal imbalance
In this process, China is simply the most convenient “imagined enemy.”
No matter who becomes president in the future, tariffs will only be used more often and will not disappear. This is a reflection of global “de-globalization” and geopolitical fragmentation.
Appendix | A Simple Guide to Tariffs, the Dollar System, and US Debt
Tariff terms
| Term | Simple explanation |
|---|---|
| Tariff | A tax on imported goods |
| Baseline tariff | The default rate |
| Reciprocal tariff | A matching response to another country’s tariff policy |
What is SWIFT?
- A “messaging system” for secure transfers between banks.
- It does not move money itself, only sends instructions.
- Analogy: the “logistics network” of banking.
The Bretton Woods System
- A global monetary system established in 1944, with the dollar pegged to gold and other currencies pegged to the dollar.
- It laid the foundation for dollar hegemony.
Triffin Dilemma
- The world wants dollars, so the US must keep exporting dollars (buy, buy, buy).
- But too many dollars weakens trust.
- The contradiction between “globalizing the dollar” and “US self-interest.”
The Global Role of US Treasuries
- Absorb excess dollars globally, serving as the credit anchor of the dollar.
- Provide low-cost financing for the US government.
- Form a loop with the dollar: “dollars -> buy Treasuries -> the US spends again”
As you can see, tariffs are far from a simple “economic issue.” They are a node where politics, fiscal policy, currency, and international order intertwine.