At the stroke of midnight, on March 4, the Trump administration’s newly imposed tariffs—the largest in modern US history—went into effect, reshaping the financial landscape overnight.
A 25% tariff now weighs on all imports from Mexico. Canadian energy products face a 10% hike, while all other Canadian goods are hit with 25%. Chinese imports, already taxed more than a month ago, now see their tariffs doubled to 20%. The scope is breathtaking: $1.3 trillion in goods are affected—nearly half of all imports into the U.S.
American consumers and businesses are left to brace for the impact.
A Historic Disruption
These tariffs surpass anything seen in modern economic history. Not since the Smoot-Hawley Act of 1930—widely blamed for worsening the Great Depression—has the U.S. implemented trade barriers of this magnitude. When the last thing you did is unprecedented, and the closest comparison wrecked the economy, people are understandably worried.
The immediate consequences are stark but predictable. Trump’s tariffs have already triggered a stock market sell-off and a lull in manufacturing activity.
Everyday essentials will cost more. Gasoline, fertilizers, steel, aluminum, and plastics—important materials in manufacturing and agriculture—will be more expensive. Shoppers will see price hikes on fresh produce from Mexico, including avocados, tomatoes, and limes. Electronics, from laptops to game consoles, will carry higher price tags corresponding to the tariffs placed on their country of origin. The auto industry, deeply entwined with North American supply chains, will face production slowdowns as key components become costlier.
Economists estimate that these tariffs will add an effective 11.5% tax to all American imports, translating to $370 billion in added costs. These costs could balloon if the Trump Administration is serious about levying a 25% import tax on the European Union, perhaps sometime in early April. The ripple effects are only beginning to unfold.
Joseph Politano, a journalist writing about monetary policy, labor market, and finance, drew these graphs to show some key insights about Trump’s new tariffs.
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Who Pays Tariffs?
In short, the people.
While shifts in exchange rates or reductions in exporter prices might mitigate some of the harm to consumers, historical evidence makes it clear that such adjustments only partially soften the blow—and any relief comes at the expense of the export sector. Detailed studies of the 2018–19 trade war with China consistently reveal that foreign exporters did not lower their prices in response to U.S. tariffs; instead, the burden of these tariffs fell squarely on U.S. importers, who then have to pass on the tax to consumers.
Several factors could drive costs even higher than currently estimated. Most notably, domestic producers competing with newly tariffed imports are likely to raise their prices in tandem with the rising costs of imports. This would compound the financial strain on U.S. consumers, pushing up their expenses. Overall, the combination of higher prices, recessionary pressures from retaliatory measures, and supply chain disruptions would deliver a significant blow to the majority of U.S. households.
Although Donald Trump campaigned on a promise to lower taxes, the reality of his policies so far suggests that most Americans would face a net increase in their tax burden. Both Trump and congressional Republicans have focused on extending the tax cuts introduced in the 2017 Tax Cuts and Jobs Act (TCJA)—cuts that are set to expire at the end of 2025—but this alone would not shield most households from the negative impacts of tariffs. Only households in the top 20 percent of the income distribution would see a net benefit from the combined effects of these tax policies (income lost to tariff-related price hikes and income gained from income tax reduction). Meanwhile, those in the bottom 60 percent would find themselves significantly worse off.
The Hardest-Hit States
The impact of these tariffs is not distributed evenly across the United States. Some states stand to suffer disproportionately, according to Bedassa Tadesse, an economist at the University of Minnesota Duluth.
Texas, the nation’s energy and trade powerhouse, is poised to lose $15.3 billion annually due to its closer ties with Mexico. California, with its diverse economy and reliance on international supply chains, could take a $10.2 billion hit. Michigan, where the auto industry is king, faces a $6.2 billion economic blow as a result of trade friction with Canada.
In total, the U.S. economy may see losses exceeding $109 billion per year, Tadesse found. And these numbers don’t even account for retaliatory tariffs—set to arrive from Canada and China within days.
For smaller states, the per-capita burden is even heavier. New Mexico, Kentucky, and Indiana are set to lose between 1.1% and 1.5% of their GDP. For New Mexico residents, that means an estimated personal financial hit of $822 per person—roughly three months’ worth of grocery bills.
Households across the country will feel the sting. Four-person families in Kentucky may need to budget an extra $3,120 annually to cover increased costs. In Indiana, the impact is estimated at $2,836 per household. Even in wealthier states like Texas, where incomes are higher and the internal economy is better shielded against tariffs, the added burden exceeds $2,000 per family.
A more conservative estimate from the Peterson Institute for International Economics suggests tariffs will cost the average American household over $1,200 a year.
“The new Trump tariff regime represents a fundamental shift in how the U.S. engages with its closest economic partners. While ostensibly meant to strengthen American industry, the tariffs on offer have serious side effects that will likely cause widespread disruptions for businesses, consumers and entire state economies,” Tadesse wrote in a blog post on The Conversation.
“Trade isn’t just about numbers on a spreadsheet. It’s about real people, real businesses and the intricate economic fabric that connects the nation. Changes to this system can come at a high price. Safeguarding American jobs and ensuring economic stability entails recognizing the realities of global trade and considering the trade-offs of instituting new policies.”
Industries at Risk
The auto industry is among the most vulnerable. Car parts cross borders multiple times before reaching final assembly. Now, that seamless flow is grinding to a halt. Economists estimate the disruption could cost automakers $28 billion, threatening nearly 700,000 jobs.
The agricultural sector is also on edge. Retaliatory tariffs from Mexico, Canada, and China could strike hard at American farmers, particularly those exporting corn, beef, and dairy. The echoes of the 2018-2019 U.S.-China trade war—when American farmers suffered $27 billion in losses—are impossible to ignore. Back then, soybean exports to China collapsed by 71%. History may be poised to repeat itself.
Manufacturers face another battle: rising costs for raw materials. Steel and aluminum, already subject to tariffs in Trump’s first term, are now even more expensive. Factories will either absorb the hit—shrinking profits—or pass the costs onto consumers. Either way, the economic pain deepens.
What even is the purpose?
Unlike previous trade battles, this one lacks clear objectives. The Trump administration claims tariffs will boost US manufacturing and protect jobs, as well as raise tax revenue and grow the economy. But according to a 2019 Federal Reserve analysis, Trump’s tariffs reduced manufacturing employment in affected industries. By all economic indicators, this seems to be a gross miscalculation.
The threat of tariffs has also been seen as leverage against Canada and Mexico to curb illegal immigration and fentanyl trafficking, yet no real negotiations with Canada or Mexico preceded the move. There are no exemptions for critical goods like energy or medical supplies. The broad nature of these tariffs suggests a political posture rather than a calculated industrial policy.
The international response has been swift. Canada has already hit back with $21 billion in retaliatory tariffs. China’s countermeasures, affecting $22 billion in American exports, take effect next week. More retaliation looms. Mexico is preparing its own trade barriers. Canada is considering an additional $86 billion in tariffs. Some Canadian leaders are even discussing halting electricity exports to the U.S. border states.
For American businesses, the instability is chilling. Trade depends on trust. If you can’t count on agreements holding, companies hesitate to invest, expand, or hire.
This is odd since Trump himself championed the United States-Mexico-Canada Agreement (USMCA) trade deal during his first term—yet now, he’s dismantling it unilaterally. Even if these tariffs are lifted in the future, the confidence in trade partnerships may take years to rebuild.
There are now winners and losers in trade wars. There are only losers. Inflation is inevitable, and so are higher interest rates to control the resulting inflation.
Tariffs may be a blunt instrument for reshaping economic policy, but they come with consequences. For now, those consequences are unfolding in grocery stores, gas stations, and factory floors across the country. The question is no longer whether the tariffs will hurt. The question is: how much damage will they do before the policy changes?