Tariffs could drive up costs for American consumers, despite promises to boost domestic industries.
The Big Picture
Affordability and inflation were key issues in the 2024 Presidential Election. Vice President Kamala Harris wasn’t able to shake the record of the Biden administration, during which Americans saw inflation rise to a 41-year high. Republicans hammered the price increases Americans have seen on food and basic goods.
But affordability and inflation aren’t going away as key issues, at least not yet, because of the potential consequences of the incoming administration’s policies, particularly trade and the growth in the share of the national debt held by the public.
Recently, President-elect Trump announced that his administration would quickly impose tariffs of 25 percent on imports from Canada and Mexico and a 10 percent tariff on imports from China. Although tariffs on imports from China were imposed during the first Trump administration and kept in place during the Biden administration, the proposed imposition of tariffs on imports from Mexico and Canada is a headscratcher. After all, one of the most significant achievements of the first Trump administration was the United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA).
Zooming In
What is a tariff?
A tariff is a tax on imports. Let’s say you own a construction company in the United States and need lumber to build homes. You buy lumber from a Canadian softwood lumber company. You make the transaction, and the lumber is shipped to you. However, it must cross the border between the United States and Canada. U.S. Customs and Border Protection would collect the tariff on that softwood lumber from the importer.
The average price for lumber is roughly $596 per 1,000 board feet. You need about 16,000 board feet of lumber for a 2,000-square-foot home. Your cost for the raw materials is a little more than $9,500. But since you’re importing the lumber to build the home, you’ve got to pay the 14.54 percent tariff on Canadian softwood lumber, which adds another nearly $1,387 to your costs, bringing the total for the lumber to $10,923. Obviously, you won’t eat that cost, so you pass it along to the consumer. The final selling price of that home is higher as a result. (It’s worth noting that the National Association of Homebuilders has called for suspending the tariff on Canadian softwood lumber because of its negative effect on the housing supply).
The history of tariffs in the U.S.
Historically, tariffs and excise taxes were the main sources of revenue for the United States. The core of the economic system envisioned by Alexander Hamilton was to use tariffs as a primary revenue source and to protect domestic industry. There were issues with tariffs in the 18th century that exacerbated simmering tensions between industrial northern and agrarian southern states. Initially, it showed itself in the Nullification crisis in the early 1830s. Later, these tensions would boil over into a civil war over the issue of slavery.
In 1913, the Sixteenth Amendment was ratified, and Congress began to impose an income tax on individuals. During World War II, individual income taxes would become the federal government's primary revenue source. According to the White House Office of Management and Budget, the individual income tax accounted for 14.2 percent of tax revenues in FY 1934. That figure jumped to 45 percent in FY 1944. In FY 2023, individual income taxes were 49 percent of all federal revenues.
Can a president impose or increase tariffs without Congress?
The short answer is yes. Although Article I, Section 8 of the Constitution gives the “power to lay and collect taxes, duties, imposts, and excises” to the Legislative Branch, Congress has generally delegated this power to the Executive Branch. This is despite the Article I, Section 5 clause that provides Congress with the sole legislative power in the United States system of government.
As noted in September, Section 232 of the Trade Expansion Act and Section 301 of the Trade Act allow a president to impose tariffs in certain situations. The Trade Expansion Act requires a national security rationale for the imposition of tariffs, while the Trade Act provides tariff authority to combat unfair trade practices. With the proposed 25 percent tariff on imported goods from Canada and Mexico, some have speculated that powers under the International Emergency Economic Powers Act (IEEPA) could be used.
What do higher tariffs mean for you?
For consumers who’ve experienced higher prices at the point of sale for the past few years, tariffs likely mean even higher prices. Consider that Mexico and Canada, our closest geographic neighbors, are two of the United States' largest trading partners. In 2023, $475.2 billion and $418.6 billion of goods were imported into the United States from Mexico and Canada, respectively.
Much of what the United States imports from Mexico is manufactured goods, including vehicles and parts. However, about $20 billion worth of agricultural products and livestock are imported from Mexico to the United States. The United States' top import from Canada is oil, and the U.S. is the top buyer of Canadian lumber.
A 25 percent tariff on all imported goods from Canada and Mexico likely means higher prices for many imported goods. Take vegetables, for example. In 2020, 77 percent of fresh vegetable imports to the United States were from Mexico. Another 11 percent were from Canada. Together, these two countries supplied the United States with some 16 billion pounds of fresh vegetables, ranging from bell peppers to tomatoes to cucumbers to squash.
Data Snapshot
- 25% tariffs proposed on goods from Canada and Mexico
- 10% tariffs proposed on goods from China
- 77% of fresh vegetables imported to the U.S. come from Mexico
- Goldman Sachs estimates Trump’s proposed tariffs would increase inflation by nearly 1%
- Walmart CFO states tariffs will be inflationary and increase costs for consumers (Fox Business)
Independent Lens
For independent voters, affordability remains a pressing issue. Tariffs may be presented as a strategy to boost domestic industries, but their historical impact suggests they will likely lead to higher costs for American consumers.
The debate over tariffs isn’t just about trade—it’s about the financial burden placed on everyday Americans. If the administration wants to maintain independent voter support, it must deliver policies that address affordability without exacerbating inflation.
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