What are duties?
Duties are levies imposed on imported products by a government or an international organization. Occasionally, duties can also be enforced on exports. They generate revenue for the government and act as a mechanism for trade regulation, often aimed at protecting local industries.
There are four primary types of duties:
- Ad valorem duties: These are assessed as a percentage of the value of the good. For instance, a 20% levy might be placed on goods valued at $100.
- Specific duties: These are set charges based on the quantity of goods. For example, there might be a fee of $5 for every kilogram of imported sugar.
- Compound duties: These merge a specific charge and an ad valorem charge applied to the same imported products. Both duties are calculated together to establish the total levy. For instance, a nation might impose a fee on imported wine of $5 per liter plus 10% of the wine’s value.
- Mixed duties: Mixed duties apply either a specific charge or an ad valorem charge, determined by predefined criteria. For example, for imported trucks, a country might levy either $5,000 per vehicle or 15% of the vehicle’s value, whichever is higher.
The aim of such policies is to affect global trade patterns, safeguard local industries, and counter unfair practices by foreign nations. When a duty is levied on an imported product, it increases its price, making locally produced alternatives more attractive to consumers regarding cost.
In the US, the Trump administration employed reciprocal duties as a crucial tool in influencing the trade policies of other nations. Reciprocal duties are trade levies a country enforces in retaliation to duties or restrictions imposed by another country. This policy aims to correct trade imbalances and protect domestic sectors.
Duties are typically collected by the customs agencies of a country at entry points based on the declared value and classification of products.
Did you know? Some nations utilize tariff-rate quotas, permitting a designated amount of a product to be imported at a lower duty. Once the limit is surpassed, a higher duty is activated. This system balances domestic protection with access to international markets, particularly in industries like agriculture and textiles.
Trump administration’s reciprocal duty policy
US President Donald Trump enacted an executive order on April 2, 2025, a day he designated Liberation Day, asserting his authority under the International Emergency Economic Powers Act (IEEPA). The order imposed a minimum 10% duty on all US imports effective April 5, 2025. Reciprocal duties took effect on April 9, 2025.
Trump announced that the US would enforce reciprocal duties at around half the percentage set by other nations. For instance, the US enacted a 34% duty in response to China’s 67%. Additionally, a 25% duty on all auto imports was declared.
The reciprocal duty policy of the Trump administration is founded on the belief that the US faced persistent trade imbalances and unjust treatment from global trading partners. To remedy this, his administration advocated what it termed reciprocal duties, seeking to establish a duty framework that matched or was at least comparable to the duties imposed by foreign countries on US exports.
Through this strategy, the administration employed duty policies to pressure nations into reducing their trade barriers or renegotiating trade agreements. The policy garnered support from domestic manufacturers and labor organizations for its attempts to rebalance trade and bolster US industry. However, it also faced criticism from economists and international allies who viewed it as protectionist and destabilizing the existing global economic system.
The reciprocal duties policy has transformed US trade relationships and signified a departure from decades of multilateral, open global trade policy.
Did you know? Duties can alter supply chains. To evade high import taxes, businesses frequently move manufacturing to countries with advantageous trade agreements. This transition doesn’t always favor consumers, as savings are not consistently transferred down, and logistics become more complicated.
The US–China duty conflict: A defining economic struggle
The US–China duty conflict, which commenced in 2018 during the first Trump administration, represented a significant change in global economic dynamics. The confrontation between the world’s two largest economies had wide-ranging effects on global supply chains, inflation, and geopolitical relations.
The trade confrontation between the US and China was not merely a bilateral disagreement. It indicated a structural reevaluation of trade policy in a multipolar world. The trade conflict initiated after the US imposed extensive duties under Section 301 of the Trade Act of 1974, citing unfair trading practices, theft of intellectual property, and coercive technology transfers by China.
Over time, the US levied duties on over $360 billion worth of Chinese products. In retaliation, China imposed duties on $110 billion of US exports, focusing on vital sectors like agriculture and manufacturing.
The conflict disrupted significant supply chains and increased costs for American companies and consumers. American farmers suffered greatly due to retaliatory Chinese duties on soybeans, prompting the US government to offer billions in subsidies to mitigate losses.
While the Phase One Agreement in 2020 alleviated tensions and required China to enhance purchases of US products and enforce protections for intellectual property, numerous duties remained intact. The Biden administration maintained most of the economic measures instituted by the first Trump administration, reflecting bipartisan concerns regarding China’s trade practices.
As of April 10, 2025, Trump had enacted 125% duties on China, while for 75 nations, he had deferred the implementation of duties for 90 days.
Compared to disputes with allies such as the European Union or Canada, the stakes are higher in the US–China clash, and the repercussions are more far-reaching.
Here are the reactions of various governments to Trump’s duties:
- Canadian Prime Minister Mark Carney imposed a 25% duty on US-manufactured automobiles and trucks.
- China will enforce a 34% duty on all US imports, effective April 10.
- The French prime minister characterized the duties as an economic disaster.
- Italian Prime Minister Giorgia Meloni condemned the duties as unjust.
- European Commission president Ursula von der Leyen promised a coordinated response and prepared countermeasures.
- Taiwan’s administration denounced the duties as unreasonable.
How do tariffs function?
When a tariff is imposed — for instance, a 30% duty on imported steel — it elevates the cost of that commodity for importers. They subsequently transfer these increased expenses to downstream enterprises, which further convey these costs to consumers.
For importers, tariffs denote heightened acquisition costs. If a US enterprise imports machinery from overseas and encounters a tariff, its overall expenditure escalates. This may decrease its profit margins or compel it to explore alternatives. Exporters in other nations could be adversely affected if US purchasers diminish orders due to elevated prices, compromising their competitiveness.
Domestic manufacturers might initially prosper from a high tariff environment. Tariffs can protect them from cheaper foreign competition, enabling them to boost sales and potentially yield profits. However, if their operations depend on imported components that are subject to tariffs, their input expenses could surge, negating their benefits.
Consumers frequently bear the consequences. Tariffs can result in price increases on everyday items — spanning electronics to clothing. Over the long haul, elevated tariffs contribute to inflation and diminish purchasing power.
Tariffs also disrupt international supply networks. Numerous products are assembled utilizing components from multiple nations. Significant tariffs on a single component can induce delays, necessitate redesigns, or compel firms to shift manufacturing, thereby escalating complexity and costs.
Ultimately, while tariffs are intended to safeguard domestic sectors, their ramifications reverberate throughout the economy via changes in prices, trade patterns, and business strategies. In one way or another, tariffs affect everyone — from factory proprietors to workers and typical shoppers.
Trump excluded several technology items, such as smartphones, chips, computers, and select electronics, from reciprocal tariffs, offering the tech sector crucial relief from tariff pressure. This action by Trump alleviated stress on tech stocks.
Trump’s tariff declaration on April 2 instigated a significant sell-off in both equities and Bitcoin (BTC), with BTC plummeting 10.5% within a week. Once regarded as an uncorrelated asset, Bitcoin now trades in correlation with tech stocks during macroeconomic shocks. According to analysts, institutional investors increasingly view BTC as a risk-on asset intricately linked to policy changes. While some perceive Bitcoin as digital gold, recent trends indicate it reacting more like Nasdaq stocks — declining during global instability and surging on optimistic sentiment.
Did you know? Tariff exemptions can be strategically significant. Governments may exempt particular industries or firms, allowing them to import items tariff-free while competitors incur additional costs. This creates an unbalanced competitive landscape and can ignite domestic debate.
Why are tariffs significant for global markets?
Tariffs represent a powerful mechanism for governments to mold a nation’s economic and trade agenda. They serve not only as taxes on imports but also as instruments that affect domestic production, consumer behavior, and global trade dynamics.
For the US, tariffs have traditionally been utilized to reinforce economic authority on the global front, safeguard nascent industries, and react to unfair trade practices.
When nations with substantial economies participate, tariff decisions can impact global supply chains, shift manufacturing locations, and alter the price of goods internationally. Even for smaller countries, in an interconnected world, tariffs hold significance as their effects can extend far beyond national borders.
On the domestic front, tariffs could enhance local industries by inflating the cost of foreign products. This can create job opportunities and bolster economic resilience in the short term.
Governments generating increased revenue through tariffs may facilitate reductions in direct taxes, as Trump suggested. However, they can also elevate prices for consumers, harm exporters, and provoke retaliation from trading partners.
As geopolitical tensions escalate and countries reassess their economic dependencies, tariffs have resurfaced as a pivotal element of US trade policy.
Whether employed defensively or offensively, they shape the equilibrium between protectionism and global interaction. This positions tariffs as not only economic instruments but also components of national strategy and international influence.
Who determines tariff policy in the US?
In the US, tariff policy is influenced by a confluence of legislative authority, executive power, and administrative enforcement. Several agencies also assist in the implementation of tariff regulations.
Congress possesses the constitutional power to oversee trade and impose tariffs. Over the years, Congress has delegated considerable authority to the president to amend tariffs in cases of national security, economic threats, or trade violations.
The Office of the US Trade Representative plays a crucial role in developing and negotiating US trade strategies. It steers trade discussions, handles disputes, and suggests tariff measures, frequently in collaboration with the president and Congress.
US Customs and Border Protection (CBP) holds the responsibility for enforcing tariffs at entry points. CBP levies duties based on the classification and valuation of imported merchandise in accordance with the Harmonized Tariff Schedule.
Several significant trade legislations have molded tariff policy in the US. The Smoot-Hawley Tariff Act of 1930, designed to protect US farmers during the Great Depression, led to retaliatory tariffs and exacerbated global trade issues.
Later, the Trade Act of 1974 equipped the president with tools like Section 301, which was extensively utilized during the US–China trade dispute to impose retaliatory tariffs on unfair foreign practices.
Collectively, these actors and regulations compose the foundation of US tariff policy.
Critique of Trump’s tariff policy
Critiques of Trump’s tariff policy emerged following the declaration of reciprocal tariffs. Opponents argue that this action circumvents Congress and establishes a perilous precedent for unchecked executive authority in economic affairs.
Critics contend that these tariffs adversely affect American enterprises more than their intended foreign targets. A Vox article asserted that low-income individuals would suffer more from Trump’s tariffs than the already beleaguered Wall Street. Former Treasury Secretary Lawrence Summers expressed concern that America may fall into recession due to tariffs, potentially costing 2 million jobs nationwide.
Legal challenges have also surfaced concerning Trump’s tariff policy. The New Civil Liberties Alliance (NCLA), a conservative legal organization, has initiated a lawsuit on behalf of Simplified, a small enterprise in Florida that sells planners and sources products from China. The suit claims that the president exceeded his authority under the International Emergency Economic Powers Act (IEEPA) while enforcing tariffs in a non-emergency trade scenario.
Small and mid-sized enterprises, many of which depend on global supply chains, will encounter rising import costs due to tariffs. This could lead to inflation and diminish the competitiveness of such firms.
While the tariffs may financially impact China in the short term, the measures could result in elevated prices for US consumers and disrupt operations for American companies if the tariff policy persists for an extended period.
