Love them or hate them, there is no getting around how tariffs work — the country that imposes them pays for them. To repeat what is rapidly becoming household knowledge across the United States: tariffs are a tax imposed on goods as they enter a country. The tariff is collected by the government in the importing country and paid by the importing firm. Which means, ultimately, tariffs imposed by President Donald Trump have a cost for those of us who live here.
Tariffs reduce supply, which tends to raise prices. Companies with sufficient market power may raise prices even beyond what the tariffs themselves cost, taking advantage of the situation, as happened during the COVID pandemic. Brace yourselves for higher prices: the president is promising a big wave of new tariffs this week, to be announced on April 2.
Although President Trump and his cabinet speak excitedly about tariffs’ potential contribution to government revenues, that is not their primary effect. Tariffs contributed just 1.6% of U.S. government revenue in 2024. Especially at rates of 10% and 25%, which are the levels the president is proposing, tariffs are most likely to discourage trade altogether, not make the Treasury rich.
Raising tariffs obviously hurts the foreign producers who sell their exports to the United States. Just the threat of tariffs on the scale that President Trump proposes can send exporters looking for alternative markets, prompting a reorganization of value chains and a search for new trade partners. This all takes time and costs money — Canada is furious (and scared) for a reason. Although Mexico has been quieter in public, their economy is no less threatened by President Trump’s determination to make imports cost more. Our neighbors will be the poorer for this policy.
But so will we. In Minnesota, nearly half of exports went to either Canada or Mexico in 2024. Even just a threat of tariff hikes has an economic impact. Tariff talk provokes trade partners to respond — the most common reaction to a unilateral tariff increase such as those ordered by the president is for the affected trade partner to impose counter-tariffs. Among the three countries singled out for the highest tariff increases by the Trump administration — China, Canada and Mexico — both Canada and China have announced retaliatory tariffs while Mexico seems to be taking a more “wait and see" approach. Trade relationships are not made overnight, but they can end abruptly, as U.S. wine and liquor exporters are learning. Big tariff increases break relationships, especially if they are announced without negotiation and backed by threats. Canada’s new Prime Minister, Mark Carney, said on Thursday, that the close relationship Canada and the U.S. has enjoyed for more than a century is “over.”
When tariffs are imposed and withdrawn without consultation or warning, they discourage investment and reduce competitiveness in the economy using the tariffs. In turn, that prompts slower job creation. Economic forecasts show this happening in the United States.
When the new administration took power, the economy was set for growth with relatively low unemployment and low inflation. This past week, as differing statements on tariffs succeeded one after another, economic forecasts have turned more pessimistic. U.S. Federal Reserve Chair Jerome Powell predicted significantly slower growth and higher inflation, while Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago, warned that inflation expectations risk becoming self-fulfilling as an increasing number of consumers and businesses appear to believe higher inflation is inevitable and are acting accordingly. Some economists predict the U.S. could be headed for a recession.
In targeting Canada, China and Mexico, the president has picked the three biggest agricultural trading partners of the United States. Minnesota’s agriculture sector alone sends $10 billion of goods abroad, over half of which are corn, soybeans and their byproducts. Yet as they learned during the first Trump administration, farmers are particularly vulnerable to trade wars. Then, farmers saw soybean exports to China shrivel in response to the counter-tariffs China imposed in response to U.S. tariffs on Chinese steel imports. Those counter-tariffs resulted in a 75% fall in U.S. soy exports to China and prompted a federal bailout of $23 billion in public money for affected farmers. The lost markets have not been recovered.
IATP argues Midwest farms must diversify away from corn and soybeans. We want to see fairer markets for producers, and regulation force cost-internalization of the big environmental and social costs imposed by monocrop export agriculture. But that is a strategy that needs time to implement, and transitional investment. The transition our food systems need will be all the harder if farmers start in a financial hole.
The government could be harnessing one of tariffs’ predictable dynamic effects: increased domestic production and sales. This outcome is one that many U.S. farm organizations would support: tariffs in support of fair market prices and stronger local purchasing systems. Were the tariffs predictable, this strategy could use tariffs judiciously to protect a supply for consumers who want better working conditions in agriculture, stronger animal welfare rules, and far less environmental damage (all of which are huge problems in U.S. food systems).
Tragically, at the same time as the president has created so much turmoil for farmers with tariffs, his administration has slashed support to hugely successful if still emergent local food economies across the country. Last month, USDA Secretary Brooke Rollins defended her decision to cut over $1 billion that had been appropriated for a nationwide program of support to resilient local food programs. She is reported to have said the program was “nonessential” and, absurdly, added the programs had been about “food justice for trans people in New York and San Francisco.” Her statement was offensive. It was also wrong. Hunter College reports that 35 states have passed or considered legislation to establish free school meals in the state for every school child in the past two years. The need and demand for access to more and better food is nationwide.
The emerging web of markets for local foods meets a series of public interest goals, including public health, education and rural economic revitalization. IATP will continue to protect and promote these resilient regional food systems. They model the kind of market relationships that we want to see in international trade too. We will continue to amplify public demand for investment in fair markets, healthy food and clean production, and to develop trade policy that raises the quality of what we grow, sell, buy and consume, whether at home or abroad.
