Tariff: How Trump's new policies actually work

President Donald Trump tariff threats would affect both the domestic and international businesses

Tariff: How Trumps new policies actually work
Tariff: How Trump's new policies actually work

Tariff, a word used quite extensively since President Donald Trump returned to the office for the second term, has caused quite a rift between US and its allies.

The decision of imposing heaving tariffs to United States biggest trading partner including China, Canada and Mexico has put a strain on a friendly relationship of the countries.

Related: China threatens US: Ready for 'any type of war' after Trump tariffs

According to Commerce Department data, collectively these nations have shipped $1.4 trillion worth of goods to the US last year, accounting for around 40% of all the imported products.

All goods coming from Mexico and Canada, with the exemption of Canadian energy product, are set to face a 25% tariff, while Chinese goods are subject to 20% tariff.

On Thursday, March 6, 2025 Trump has once again put a paused on the 25% tariffs imposed on Mexico and Canada for a month.

The on-again, off-again tariff threats have put an obvious crack in US-Canada friendly relationship.

The Trump administration has listed suspending the flow of fentanyl into the US as the major reason behind imposing huge tariffs, which could eventually raise prices of goods in a unstable economy.

Furthermore, the 47th US president and his fellow politicians on numerous occasions have shared that additional cost due to tariffs will be paid by the foreign countries but the claimed remains far from the truth.

Here are some important details about tariffs:

What is a tariff?

Tariff by definition is a tax on imported goods, coming from another country.

A tariff is typically structured as a percentage of a value of the import good and varies based on where the goods are coming from and what the products are.

Who pays the tariff?

Contrary to the Trump's administration claims, the domestic businesses that are importing products into the country pay the tariffs up front.

The transaction occurs at the 328 ports in the US for entry, designated by Custom and Border Protection (CBP) to take in imports, including roads, railways, ports, and airports.

At entry, CBP agents collect tariff revenue from the domestic businesses, which is calculated based on how the merchandise is classified and where it came from.

Many importers use the government's electronic payment system, which automatically deducts tariff from a linked bank account, while some pay it as a sum total on a monthly basis.

Related: Trump administration delays tariffs on Canada, Mexico cars

The only way foreign nations are paying for the tariffs is when local bossiness shift their supplier elsewhere in order to avoid heavy taxes.

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