What exactly do tariffs do?
Executive summary
Tariffs are taxes on imports that raise the price of foreign goods, generate government revenue and shift trade patterns — with recent U.S. measures in 2025 raising the average applied tariff rate toward the mid-teens and producing roughly $250 billion in receipts so far this year [1] [2]. Economists and trade bodies report measurable effects: consumer prices have risen (the St. Louis Fed estimates a PCE‑weighted tariff price effect of about 0.87%) and global trade volumes and manufacturing activity have weakened amid uncertainty and reciprocal measures [3] [4] [5].
1. What a tariff does at the cash register: it raises prices and shifts costs
A tariff is a tax imposed on imported goods; by design it increases the landed cost of those goods, and sellers often pass some or all of that cost to consumers. Modeling and empirical work in 2025 finds tangible pass‑through: the St. Louis Fed’s PCE‑weighted estimate puts tariff‑driven price pressure at about 0.87% on consumer categories included in their model, and tax‑foundation calculations show average effective tariff rates reaching double‑digit levels and put per‑household cost increases in the thousands under certain scenarios [3] [1].
2. What a tariff does at the border: it raises government revenue — but unevenly
Tariffs raise revenue for the collecting government; U.S. tariff receipts in 2025 have been substantial, reported at roughly $250 billion so far, and think‑tank trackers estimate that overturning some recent tariff authorities could lower projected revenue by around $1.4 trillion over a multi‑year window [2] [6]. But revenue gains depend on exemptions, legal challenges and behavioral responses: the Congressional Budget Office notes many exemptions left “more than a third” of imports unaffected by new rates in 2025, and CBO projections adjust for trade diversion that reduces long‑run receipts [7].
3. What a tariff does to trade flows: it diverts, reduces and invites retaliation
Tariffs change import patterns: buyers substitute toward lower‑tariff suppliers or domestic producers, and exporters lose market share where trading partners retaliate. The WTO and other analysts warn that reciprocal tariffs and policy uncertainty can shrink world merchandise trade (a projected fall of 0.2% in 2025 with downside scenarios of −1.5%) and concentrate damage regionally — North America is singled out for steeper export declines [4]. Empirical data already show a “sharp decrease in the value of U.S. imported goods subject to tariffs,” suggesting demand effects and trade diversion [8].
4. What a tariff does to production and employment: mixed outcomes, often negative net
Policymakers sometimes justify tariffs as support for domestic manufacturing and jobs. Firms facing higher input costs can reshore some activity, but many U.S. manufacturers and retailers report higher input prices and “trade confusion,” and surveys/documentation point to weakening factory orders and employment pressure — Reuters reports manufacturing contracted for a ninth month as tariff costs persisted [5]. Financial‑sector and research forecasts likewise see GDP hits for trade‑exposed economies and the possibility that tariffs, over time, reduce rather than expand overall employment [9] [5].
5. Short‑run winners, long‑run losers — and the role of exemptions and law
In the short run, certain industries tied to tariff protection may see relief, and the Treasury records immediate revenue upticks. But long‑run effects depend on legal rulings, exemptions and whether trading partners retaliate. CBO and academic labs stress that exemptions (for semiconductors, some agriculture, etc.) blunt some impacts, and courts have already enjoined specific tariff orders, injecting policy uncertainty that itself reduces investment and complicates firm planning [7] [10] [11].
6. Competing interpretations and political framing
The administration advancing tariffs frames them as tools to reshore production and “pry open” foreign markets; critics frame them as regressive price‑raising taxes and growth dampeners. The New York Times reports the White House arguing for jobs and factories returning, while independent analysts note farmers and consumers feel the squeeze and public opinion is broadly negative on long‑term effects [2] [12]. Economic research institutions and industry voices provide competing forecasts on GDP and employment impacts, reflecting different assumptions on pass‑through, substitution and retaliation [9] [3].
7. What reporting leaves out or remains uncertain
Available sources do not mention precise incidence—how much of any specific tariff is borne by foreign exporters versus U.S. consumers or U.S. producers for every product line — because pass‑through varies by industry and contract terms; researchers estimate average effects but not product‑level final incidence in every case (not found in current reporting). Many macro projections also depend on future policy actions and legal rulings; overturning IEEPA tariffs or negotiating trade deals would materially change outcomes [6] [13].
Bottom line: tariffs are blunt fiscal and industrial policy tools that raise import prices and revenue, reshuffle trade, and create winners and losers across consumers, firms and trading partners. The balance of evidence in 2025 shows measurable inflationary pressure, disrupted trade volumes and strain on manufacturing, even as exemptions, legal challenges and political goals complicate a simple verdict [3] [4] [5].