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Tariffs 101: What they are, who pays them, and why they matter now

Learn what tariffs are, who pays them, and why they matter for the U.S. economy. Explore how import taxes impact prices, trade policy, and everyday consumers as the Supreme Court reviews Trump’s global tariffs.

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Last Updated on December 13, 2025 by Daily News Staff

Cargo containers and U.S. Customs officers at a busy port, illustrating the impact of tariffs and trade policy on imported goods.

Tariffs 101: What they are, who pays them, and why they matter now

Kent Jones, Babson College

The U.S. Supreme Court is currently reviewing a case to determine whether President Donald Trump’s global tariffs are legal.

Until recently, tariffs rarely made headlines. Yet today, they play a major role in U.S. economic policy, affecting the prices of everything from groceries to autos to holiday gifts, as well as the outlook for unemployment, inflation and even recession.

I’m an economist who studies trade policy, and I’ve found that many people have questions about tariffs. This primer explains what they are, what effects they have, and why governments impose them.

What are tariffs, and who pays them?

Tariffs are taxes on imports of goods, usually for purposes of protecting particular domestic industries from import competition. When an American business imports goods, U.S. Customs and Border Protection sends it a tariff bill that the company must pay before the merchandise can enter the country.

Because tariffs raise costs for U.S. importers, those companies usually pass the expense on to their customers by raising prices. Sometimes, importers choose to absorb part of the tariff’s cost so consumers don’t switch to more affordable competing products. However, firms with low profit margins may risk going out of business if they do that for very long. In general, the longer tariffs are in place, the more likely companies are to pass the costs on to customers.

Importers can also ask foreign suppliers to absorb some of the tariff cost by lowering their export price. But exporters don’t have an incentive to do that if they can sell to other countries at a higher price.

Studies of Trump’s 2025 tariffs suggest that U.S. consumers and importers are already paying the price, with little evidence that foreign suppliers have borne any of the burden. After six months of the tariffs, importers are absorbing as much as 80% of the cost, which suggests that they believe the tariffs will be temporary. If the Supreme Court allows the Trump tariffs to continue, the burden on consumers will likely increase.

While tariffs apply only to imports, they tend to indirectly boost the prices of domestically produced goods, too. That’s because tariffs reduce demand for imports, which in turn increases the demand for substitutes. This allows domestic producers to raise their prices as well.

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A brief history of tariffs

The U.S. Constitution assigns all tariff- and tax-making power to Congress. Early in U.S. history, tariffs were used to finance the federal government. Especially after the Civil War, when U.S. manufacturing was growing rapidly, tariffs were used to shield U.S. industries from foreign competition.

The introduction of the individual income tax in 1913 displaced tariffs as the main source of U.S. tax revenue. The last major U.S. tariff law was the Smoot-Hawley Tariff Act of 1930, which established an average tariff rate of 20% on all imports by 1933.

Those tariffs sparked foreign retaliation and a global trade war during the Great Depression. After World War II, the U.S. led the formation of the General Agreement on Tariffs and Trade, or GATT, which promoted tariff reduction policies as the key to economic stability and growth. As a result, global average tariff rates dropped from around 40% in 1947 to 3.5% in 2024. The U.S. average tariff rate fell to 2.5% that year, while about 60% of all U.S. imports entered duty-free.

While Congress is officially responsible for tariffs, it can delegate emergency tariff power to the president for quick action as long as constitutional boundaries are followed. The current Supreme Court case involves Trump’s use of the International Emergency Economic Powers Act, or IEEPA, to unilaterally change all U.S. general tariff rates and duration, country by country, by executive order. The controversy stems from the claim that Trump has overstepped his constitutional authority granted by that act, which does not mention tariffs or specifically authorize the president to impose them.

The pros and cons of tariffs

In my view, though, the bigger question is whether tariffs are good or bad policy. The disastrous experience of the tariff war during the Great Depression led to a broad global consensus favoring freer trade and lower tariffs. Research in economics and political science tends to back up this view, although tariffs have never disappeared as a policy tool, particularly for developing countries with limited sources of tax revenue and the desire to protect their fledgling industries from imports.

Yet Trump has resurrected tariffs not only as a protectionist device, but also as a source of government revenue for the world’s largest economy. In fact, Trump insists that tariffs can replace individual income taxes, a view contested by most economists.

Most of Trump’s tariffs have a protectionist purpose: to favor domestic industries by raising import prices and shifting demand to domestically produced goods. The aim is to increase domestic output and employment in tariff-protected industries, whose success is presumably more valuable to the economy than the open market allows. The success of this approach depends on labor, capital and long-term investment flowing into protected sectors in ways that improve their efficiency, growth and employment.

Critics argue that tariffs come with trade-offs: Favoring one set of industries necessarily disfavors others, and it raises prices for consumers. Manipulating prices and demand results in market inefficiency, as the U.S. economy produces more goods that are less efficiently made and fewer that are more efficiently made. In addition, U.S. tariffs have already resulted in foreign retaliatory trade actions, damaging U.S. exporters.

Trump’s tariffs also carry an uncertainty cost because he is constantly threatening, changing, canceling and reinstating them. Companies and financiers tend to invest in protected industries only if tariff levels are predictable. But Trump’s negotiating strategy has involved numerous reversals and new threats, making it difficult for investors to calculate the value of those commitments. One study estimates that such uncertainty has actually reduced U.S. investment by 4.4% in 2025.

A major, if underappreciated, cost of Trump’s tariffs is that they have violated U.S. global trade agreements and GATT rules on nondiscrimination and tariff-binding. This has made the U.S. a less reliable trading partner. The U.S. had previously championed this system, which brought stability and cooperation to global trade relations. Now that the U.S. is conducting trade policy through unilateral tariff hikes and antagonistic rhetoric, its trading partners are already beginning to look for new, more stable and growing trade relationships.

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So what’s next? Trump has vowed to use other emergency tariff measures if the Supreme Court strikes down his IEEPA tariffs. So as long as Congress is unwilling to step in, it’s likely that an aggressive U.S. tariff regime will continue, regardless of the court’s judgment. That means public awareness of tariffs ⁠– and of who pays them and what they change ⁠– will remain crucial for understanding the direction of the U.S. economy.

Kent Jones, Professor Emeritus, Economics, Babson College

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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The Knowledge

Where Does Federal Money Go? The Biggest Costs Behind the Budget

Where does federal money go? Part two of our National Debt Explained series examines the biggest expenses in the 2025 budget and how spending connects to government borrowing.

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Last Updated on October 13, 2026 by Daily News Staff

The Knowledge | National Debt Explained, Part 2

When discussing debt, ask: Who borrowed the money? That question helps distinguish a family’s finances from the federal budget. Our first episode explained why your credit card balance is separate from the national debt. Now comes the next question: What does the federal government spend money on?

U.S. Capitol surrounded by illustrations representing Social Security, health care, defense, infrastructure, and interest on federal debt.
An editorial illustration places the U.S. Capitol at the center, surrounded by scenes representing Social Security, health care, defense, infrastructure, and interest on federal debt. Retirement and health care receive the greatest visual emphasis, highlighting major expenses explored in The Knowledge’s national debt series.

Much of it pays for retirement benefits, health coverage, national defense, public services, and interest on previous borrowing.

Social Security was the largest individual program in fiscal year 2025, costing approximately $1.6 trillion. But combine the major health care programs—including Medicare, Medicaid, and health insurance subsidies—and their spending reached about $1.8 trillion, exceeding Social Security alone. cbo.gov

Part one in the series of articles about the national debt> https://stmdailynews.com/whose-debt-is-the-national-debt/

The figures below cover October 1, 2024, through September 30, 2025.

Major expenseFY 2025 spendingWhat it supports
Social SecurityAbout $1.6 trillionRetirement, survivor, and disability benefits
Medicare, net$988 billionHealth coverage for older adults and certain people with disabilities
Net interest$970 billionCost of servicing publicly held federal debt, after subtracting interest income
Discretionary defense$893 billionMilitary personnel, operations, equipment, and research
Medicaid$668 billionFederal contribution toward health coverage and care for eligible people

These are selected expenses, not the entire budget. Medicare spending is shown after premiums and other offsetting receipts. The combined health care total already includes Medicare and Medicaid, so it should not be added to those rows. cbo.gov

The government also supports veterans’ health care, transportation, education, housing assistance, courts, law enforcement, scientific research, disaster response, and environmental protection. Nondefense discretionary spending totaled approximately $980 billion in 2025, covering many of these services. Some funding for these areas falls elsewhere in the budget. cbo.gov

Federal spending falls into three broad groups:

  • Mandatory spending: Payments governed by existing eligibility rules and benefit formulas, including Social Security and major health programs.
  • Discretionary spending: Funding lawmakers control through appropriations legislation, including most defense spending and many public services.
  • Net interest: The expense of servicing publicly held federal debt, minus government interest income. cbo.gov

Interest deserves attention because it pays for borrowing already undertaken. In 2025, net interest exceeded discretionary defense spending. Congressional Budget Office

A program’s cost does not automatically translate into an equal increase in national debt. Taxes and other receipts finance much of federal spending. Social Security and Medicare’s hospital insurance program receive dedicated payroll taxes, while Medicare also collects premiums.

In 2025, federal spending totaled approximately $7 trillion, compared with $5.2 trillion in revenue. The roughly $1.8 trillion shortfall was the deficit, requiring borrowing. Understanding national debt therefore means examining both what government spends and what it collects. cbo.gov

Explore more explanations behind the headlines at STM Daily News, home of The Knowledge.

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Daily News

Whose Debt Is the National Debt?

The national debt isn’t Americans’ credit card balances added together. This simple explainer separates federal borrowing from household debt and explains the difference between debt and a deficit.

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Last Updated on October 11, 2026 by Daily News Staff

The Knowledge | STM Daily News

National Debt: Split illustration showing the U.S. Capitol and Treasury documents beside a household credit card, calculator, and bills, contrasting national and personal debt.
An editorial illustration contrasts federal borrowing with household debt. On one side, the U.S. Capitol, Treasury documents, and dollar bills represent the national debt. On the other, a credit card, calculator, and bills on a kitchen table represent personal borrowing. A clear divider emphasizes that these are separate types of debt.

When you hear “national debt,” do you picture everyone’s credit card balances added together? The name can create that impression, but the national debt and household debt measure different borrowing.

The U.S. national debt is money the federal government owes. Your personal credit card balance is not included.

Whose Debt Is the National Debt?

Federal debt versus household debt

The Treasury defines national debt as the federal government’s total outstanding borrowing accumulated over the country’s history. Household debt covers borrowing by individuals and families, including mortgages, credit cards, auto loans, and student loans.

|Type of debt  |Who borrowed?           |Examples                                          |
|————–|————————|————————————————–|
|National debt |Federal government      |Outstanding Treasury securities                   |
|Household debt|Individuals and families|Credit cards, mortgages, auto loans, student loans|

Putting a $500 purchase on your credit card increases your personal balance. It does not add $500 to the national debt.

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How does the national debt grow?

When federal spending exceeds tax collections and other revenue, the government runs a budget deficit. Treasury sells securities to borrow money to cover the gap.

Consider a simplified, hypothetical example: the government collects $5 trillion and spends $6 trillion in one year. That leaves a $1 trillion deficit requiring financing.

A deficit measures a shortfall over a period, usually a year. Debt measures outstanding borrowing accumulated over time. Repeated deficits generally increase that debt. Interest on existing borrowing is also a federal expense.

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Does paying off your credit card reduce the national debt?

Paying off a card reduces what you owe your lender. It does not directly repay Treasury borrowing. Household debt and government debt can influence the same economy, but they remain separate obligations.

https://stmdailynews.com/exploring-the-best-neighborhoods-in-downtown-los-angeles/

When discussing debt, ask: Who borrowed the money? That one question helps distinguish a family’s finances from the federal budget.

Find more explanations of the ideas behind the headlines at STM Daily News, home of The Knowledge.

Sources

● U.S. Treasury: Understanding the National Debt

● U.S. Treasury: Understanding the National Deficit

● Federal Reserve Bank of New York: Household Debt and Credit Report

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Entertainment

Paramount Prepares for Possible California Exit Amid Warner Bros. Merger Battle

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Last Updated on September 17, 2026 by Daily News Staff

HOLLYWOOD, Calif. — Paramount’s century-long connection to Hollywood could be facing one of its biggest challenges yet, as the entertainment giant reportedly prepares for the possibility of moving major operations out of California amid an escalating legal battle over its proposed acquisition of Warner Bros. Discovery.

Paramount is reportedly preparing for a possible California exit as its $110 billion Warner Bros. Discovery merger faces an antitrust battle.
Studio weighs California exit amid Warner Bros. merger battle

Paramount has informed the offices of Los Angeles Mayor Karen Bass and California Attorney General Rob Bonta that it is prepared to formally announce plans to leave California, according to reporting Wednesday from TheWrap. Paramount has not formally announced a relocation, and a company spokesperson declined to comment to the publication.

The potential move centers on Paramount Skydance’s proposed approximately $110 billion acquisition of Warner Bros. Discovery, a deal being challenged on antitrust grounds by California and a coalition of 11 other states, along with a separate challenge from the Writers Guild of America. California Attorney General Rob Bonta argues that combining the two entertainment companies could reduce competition, potentially leading to higher prices and fewer choices for consumers.

A court agreement currently prevents Paramount and Warner Bros. Discovery from completing the merger until June 1, 2027, or until after a court decision on the states’ claims, whichever comes first. The antitrust case is scheduled for trial in March 2027.

Paramount’s Hollywood Future

At the center of the controversy is Paramount’s historic studio complex at 5555 Melrose Avenue in Hollywood, one of the entertainment industry’s most recognizable properties.

The Los Angeles Times reported that Paramount CEO David Ellison has told associates that he would prefer to remain in Los Angeles. However, Paramount’s board has reportedly approved a contingency plan that could move the company’s headquarters out of Hollywood, and Ellison has indicated that the company is prepared to sell its historic studio properties and relocate operations if the merger remains stalled.

Tennessee, Texas and Georgia have emerged in reports as potential destinations should Paramount ultimately decide to relocate.

The financial pressure is significant. Beginning October 1, Paramount faces a roughly $7 million-per-day additional payment obligation tied to delays in completing the Warner Bros. Discovery transaction. Paramount has asked the federal court to require the states and the Writers Guild of America to post a $1.88 billion bond to cover potential costs associated with the delay.

What’s at Stake for Los Angeles?

A Paramount departure could extend far beyond the loss of a famous Hollywood address.

An economic analysis cited by TheWrap estimates that a large-scale Paramount departure could put as many as 57,980 full-time jobs, $21.2 billion in annual economic output and approximately $1.17 billion in state and local tax revenue at risk. Those figures represent an economic-impact scenario rather than a prediction that all of those losses would necessarily occur.

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There are competing concerns about the merger itself. Los Angeles County analysis has estimated that completing the Paramount-Warner Bros. combination could also eliminate thousands of entertainment and related jobs because of consolidation. Opponents of the merger, including entertainment unions, have raised concerns about reduced competition and employment, while supporters argue that reaching a settlement could help prevent Paramount from moving operations out of California.

Mayor Bass has said she remains focused on protecting Los Angeles entertainment jobs and keeping Hollywood’s entertainment industry centered in the city. Bonta’s office, meanwhile, has maintained that California will continue enforcing its antitrust laws while remaining open to good-faith discussions.

Settlement Talks Scheduled

There is still an opportunity for the dispute to be resolved before Paramount makes a final decision about its California operations.

Paramount Skydance and representatives for California Attorney General Rob Bonta are scheduled to participate in court-ordered settlement talks on October 14 and 15. The discussions could potentially resolve the antitrust dispute and clear a path for Paramount’s proposed Warner Bros. Discovery acquisition.

For now, Paramount has made no official announcement that it is leaving California. The company declined to comment on reports Wednesday that it was preparing to announce a departure.

That leaves the future of Paramount’s Hollywood operations — including its historic Melrose Avenue studio — uncertain as the legal and financial pressure surrounding the merger continues to build.

For now, the gates at Paramount remain firmly planted on Melrose Avenue.

Settlement Talks Scheduled

There is still an opportunity for the dispute to be resolved before Paramount makes a final decision about its California operations.

Paramount Skydance and representatives for California Attorney General Rob Bonta are scheduled to participate in court-ordered settlement talks on October 14 and 15. The discussions could potentially resolve the antitrust dispute and clear a path for Paramount’s proposed Warner Bros. Discovery acquisition.

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For now, Paramount has made no official announcement that it is leaving California. The company declined to comment on reports Wednesday that it was preparing to announce a departure.

That leaves the future of Paramount’s Hollywood operations — including its historic Melrose Avenue studio — uncertain as the legal and financial pressure surrounding the merger continues to build.uilding around the Warner Bros. Discovery deal, the question of whether one of Hollywood’s most historic studios will continue calling California home has moved from speculation to a potentially consequential decision for Los Angeles and its entertainment industry.

STM Daily News will continue monitoring the Paramount-Warner Bros. Discovery dispute and what it could mean for Hollywood, entertainment workers and the future of film and television production in California.

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