Tariffs—taxes on specific imported goods—aim to correct or maintain a trade balance between countries.   

When the US imposes a tariff on an imported good, the company importing the good pays the tariff, or tax. This tax can be a percentage of the good’s cost or a fixed amount per item. For a certain pair of imported name-brand sneakers, for example, the tax is about 20 percent. 

So, who bears the ultimate cost of tariffs? The incidence (a measure of who ultimately pays for a tariff) lies with purchasers. Research has shown that importers pass some or all of the cost to purchasers of imports, like American households and businesses. Those purchasers end up paying higher prices for those imports. 

As the price goes up for the import, demand for the import can fall, which can lead to lower profits for the importing company. In turn, this can lower incomes for that company’s employees and potentially reduce the number of available jobs they provide. 

Other countries can also respond to US tariffs by imposing their own tariffs on US imports, making it harder for US companies to sell their products internationally. 

To learn more about the impact of tariffs, read our report “Tariffs, Trade, China, and the States”, blog about President-elect Trump’s proposed tariff impacts “A More Aggressive Trump Tariff Would Lower Household Incomes By Nearly $3,000” and blog about the state impacts “Trump’s Proposed Tariffs Would Fall Hardest on States in the Midwest and South”. To learn more about how tariffs work, read our blog “What Is A Tariff And Who Pays It?”.