What tariffs do and why economists don’t like them

“The most beautiful word in the dictionary is tariff,” former President Donald Trump told the Economic Club of Chicago last week. “It’s my favorite word.”

The Republican candidate for president has spent the past few weeks floating ever higher proposals for raising surcharges on foreign goods entering the United States. He has called for a 20% blanket tariff on all imports, tariffs of at least 60% on products from China, 100% tariffs on nations that shift away from trading with the dollar, and a 2,000% tariff on vehicles built in Mexico.

Economists across the political spectrum oppose these ideas, saying the most likely outcome would be higher prices for consumers. Here’s a look at how tariffs work and why they’re so critical in an election in which living costs are front and center.

Tariffs, also known as duties or levies, are deterrents. They penalize domestic firms that import foreign-made goods to encourage companies to source more of those items within the country. When a tariff is placed on a product — be it a watermelon, a washing machine or a high-tech component — any U.S.-based company that imports it must pay a percentage of that item’s price to the government, with federal officials setting the rate.

Trump has said the revenue from these payments would be huge. He proposes using it to fund everything from tax cuts to subsidized child care. In a rambling response to a question about the latter issue last month, he said “those numbers” from tariff revenue “are so much bigger than any numbers that we’re talking about, including child care” costs.

But any business facing a tariff has two options: either stop importing the targeted product and buy it domestically instead, or raise its sale price. When firms can’t find the goods they need within U.S. borders at prices they can afford, or at all, they tend to pass some or all of the cost of the tariff to consumers.

For that reason, Vice President Kamala Harris has called Trump’s tariff proposals “a sales tax on the American people” that she says would raise costs for households by $4,000 each year. Adam Hersh, a senior economist at EPI Action, the advocacy arm of the left-leaning Economic Policy Institute, puts that estimate lower but still in the four-figure range at $2,500 to 3,000 per year.

“Donald Trump will not just impose a $4,000 a year middle class tax hike — his plan will permanently jack up inflation, crush American manufacturing jobs, and hurt manufacturing workers more than any other sector,” Joseph Costello, a Harris campaign spokesperson, said in a statement. “Over and over, independent economists are warning of the economic dangers of Trump’s plan, and Americans should take note.”