US President Donald Trump has launched another round of tariffs in September 2025, this time targeting pharmaceutical goods, timber, lumber and heavy trucks. This latest salvo has scuttled hopes of an end to tariff escalations, sending many governments back to the drawing board to figure out how to negotiate the latest announcements.  

Tariffs might seem like a technical term reserved for trade negotiations, but in reality, they touch almost every corner of the economy. When a new tariff is announced, consumers may see higher prices on store shelves, manufacturers may rethink supply chains, and traders may watch currencies and stocks swing within hours.  

In this article, we’ll break down the essentials of US tariffs: what they are, how they’ve developed through American history, and the many ways they influence global trade, domestic industries, and financial markets.  

Key Points 

• US tariffs are taxes on imported goods used to protect domestic industries, generate revenue, and influence trade relations. 
• From early protectionism to Trump’s renewed tariff campaigns, America’s tariff history has repeatedly reshaped global trade and politics. 
• Tariff changes ripple through economies and markets, driving price inflation, supply chain shifts, and volatility in currencies, stocks, and commodities. 

What are US Tariffs? 

At its simplest, a tariff is a tax that a government imposes on goods and services crossing its borders. Tariffs apply most often to imports, though in certain cases countries also apply them to exports. In the United States, tariffs are administered by US Customs and Border Protection and are enforced under laws passed by Congress. 

US tariffs came into the spotlight during the second term of Trump’s presidency. Upon his return to office, one of Trump’s first acts was to announce a round of tariffs against virtually every nation, with major trade partners such as Canada, Latin America and China facing among the stiffest rates.  

Discover how Trump’s first wave of tariffs shook the markets in our full article. 

With the latest rounds of US tariffs, more countries are now grappling with increased trade friction from US tariffs.  

The Purpose of Tariffs 

Governments impose tariffs for a few primary reasons: 

• Revenue generation: In the early history of the US, tariffs were a major source of federal revenue before the introduction of income tax in 1913. Today in 2025, Trump’s tariffs have generated an estimated US$214.9 billion in revenue for the US government ^[1].  
• Protecting domestic industries: By making imported goods more expensive, tariffs encourage consumers and businesses to buy local products. For instance, a tariff on foreign steel makes American steel more competitive. By imposing tariffs that raise the cost of imports, Trump is attempting to coerce foreign investment to revive US manufacturing.  
• Trade leverage and retaliation: Tariffs can be used as bargaining chips in negotiations or as retaliation if another country adopts trade measures seen as unfair. Indeed, one of the primary drivers behind Trump’s trade tariffs is a desire to balance the US trade deficit, which ran to a record high of US$1.2 trillion in 2024 ^[2]. 
• National security: Tariffs sometimes aim to protect industries considered critical for defense, such as metals, energy, or semiconductors. In fact, this is one of the main aims of Trump’s tariffs is to lessen American reliance on external sources of critical goods, particularly semiconductors.   

Types of Tariffs 

Tariffs come in different forms: 

• Import tariffs: By far the most common in US trade policy, these apply to goods brought into the country. For example, the US has long imposed tariffs on certain agricultural products, textiles, and metals. 
• Export tariffs: Rare in modern US policy but sometimes used historically to limit the outflow of resources like raw materials. 
• Ad valorem tariffs: Calculated as a percentage of the value of the good. For example, a 10% tariff on a $1,000 piece of machinery adds $100 to its cost. 
• Specific tariffs: A fixed fee per physical unit, regardless of price. For instance, a $1 tariff per bushel of wheat. 
• Tariff-rate quotas: A hybrid system where a certain quantity of imports is allowed at a lower tariff rate, but imports above that quota face much higher duties. 

Together, these tools shape trade flows, often with unintended side effects. 

A Brief History of US Tariffs 

Tariffs have played a central role in the United States’ economic story, from the early days of nation-building to the modern disputes over globalisation. 

Early American Tariffs 

In 1789, just months after the Constitution went into effect, Congress passed the Tariff Act of 1789. This measure imposed duties on a wide range of imported goods, designed both to raise revenue for the new federal government and to support fledgling American industries. At this stage, tariffs were the government’s primary source of income. 

By the early 19th century, tariffs became deeply political. The Tariff of Abominations (1828) imposed extremely high duties on imported manufactured goods. While this protected Northern manufacturers, it harmed the largely agricultural South, which relied on imports and feared retaliatory tariffs on its cotton exports.  

The controversy was so severe that it triggered the Nullification Crisis in South Carolina, which was seen as a serious early test of federal authority. 

The 19th Century and Protectionism 

Throughout the 1800s, tariffs were a recurring tool for protecting industries, especially as the US industrialised. High tariffs provided a cushion for domestic producers of steel, textiles, and other goods, shielding them from European competition. However, they also made everyday goods more expensive for consumers. 

The Smoot-Hawley Tariff Act (1930) 

The most infamous chapter in US tariff history came during the Great Depression. In 1930, Congress passed the Smoot-Hawley Tariff Act, raising duties on more than 20,000 imported goods. Supporters hoped it would protect US farmers and workers from foreign competition at a time of economic collapse. Instead, it provoked swift retaliation from other countries, triggering a collapse in global trade. 

Between 1929 and 1934, world trade declined by approximately 66%, exacerbating the global downturn ^[3]. Economists today often cite the Smoot-Hawley Tariff Act as a cautionary tale of how protectionism can have unintended consequences. 

Trade Liberalisation After World War II 

After World War II, the US helped lead efforts to reduce tariffs globally. In 1947, the General Agreement on Tariffs and Trade (GATT) was established, eventually replaced in 1995 by the World Trade Organisation (WTO). These institutions encouraged freer trade, with the US at the forefront. 

During this era, tariffs generally fell, replaced by other forms of trade regulation, such as quotas and subsidies. The US entered into free trade agreements (FTAs), most prominently the North American Free Trade Agreement (NAFTA) in 1994, which reduced tariffs between the US, Canada, and Mexico. 

The 21st Century and Trade Disputes 

In recent decades, tariffs have returned to the spotlight.  

• US–China trade war (2018–2020): The Trump administration imposed tariffs on more than $360 billion worth of Chinese goods, citing unfair trade practices and intellectual property theft. China retaliated with tariffs on over $110 billion of US exports, targeting key industries like agriculture ^[4]. 
• Tariffs on steel and aluminum (2018): Justified on national security grounds, these tariffs applied broadly, including against close allies such as Canada and the EU, leading to countermeasures. 
• New US tariffs by Trump (2024 onwards): In late 2024, Trump proposed sweeping tariff plans as part of his second-term agenda. He imposed additional tariffs on Chinese goods, which once escalated to 145%, along with a 25% tariff on imports from Mexico and Canada, all as part of a broader “America First” trade strategy ^[5]. This has now been followed by new tariffs imposed on segments including pharmaceutical, materials and more. 

How do US Tariffs Affect Global Trade? 

Because the US is the world’s largest economy and a major importer, its tariff policies cause effects that ripple across the global stage. Even relatively small changes in US tariff rates can influence trade flows, alter business decisions, and shift economic growth patterns in multiple regions. The global economy is highly interconnected, so when tariffs disrupt one link in the chain, the consequences often spread far beyond US borders. 

Supply Chain Disruptions 

Tariffs can force companies to reconfigure supply chains in ways that are both costly and time-consuming. When the US levies duties on goods from a particular country, manufacturers and retailers must quickly decide whether to absorb the higher costs or find alternative suppliers. This often means moving production to third countries, which can involve setting up new facilities, negotiating contracts, and adjusting logistics networks. 

The US–China tariff battles highlighted this effect vividly. American firms that once relied heavily on Chinese manufacturing shifted parts of their operations to countries like Vietnam, Malaysia, and Mexico. While this strategy helped reduce dependence on China, it also created bottlenecks in new host countries that lacked the same scale of infrastructure and labour capacity. The end result was longer lead times and higher operational costs. 

Even when companies successfully diversify, the transition rarely goes smoothly. Supply chains optimised for efficiency suddenly become more complex, increasing the risk of delays, shortages, and mismatches between supply and demand. For global consumers, this can mean higher prices or limited availability of products ranging from electronics to clothing. 

Retaliation and Trade Wars 

When the US imposes tariffs, its trade partners often retaliate with their own measures, setting off cycles of escalating restrictions known as trade wars. These disputes can quickly spread across multiple industries, affecting far more goods than the original tariffs targeted. For companies that rely on exports, retaliation can mean the sudden loss of critical markets, sometimes with little room to pivot. 

Again, the 2018 US–China tariff conflict is one of the clearest examples. In response to US measures, China imposed duties on US agricultural exports, particularly soybeans, pork, and whiskey. These were strategically chosen because they came from regions of the US with significant political influence, thereby amplifying domestic pressure on Washington to reconsider its stance. Similarly, the European Union responded to US steel and aluminium tariffs with duties on symbolic American exports like motorcycles and bourbon. 

Such tit-for-tat measures escalate costs on both sides and create widespread uncertainty. Businesses hesitate to make long-term investments, such as opening new factories or hiring more workers, because they cannot predict whether future tariffs or retaliatory measures will erase the profitability of those decisions. For global investors, trade wars introduce volatility that can chill investment flows across multiple markets. 

Effects on World Markets 

The impact of US tariffs extends far beyond bilateral disputes, often slowing global economic growth. Because trade links economies together, when tariffs reduce the flow of goods, countries that depend on exports feel the pinch. Industries tied to global demand – such as manufacturing in Germany, electronics in South Korea, or raw materials in emerging markets – can suffer sharp downturns. 

For example, when tariffs between the US and China escalated, global supply chains for technology products were disrupted, depressing exports not only from China but also from intermediary countries that supplied components. The slowdown in world trade activity translated into weaker growth in shipping, logistics, and energy demand, creating knock-on effects in industries unrelated to the original tariff dispute. 

International organisations have tried to quantify this broader damage. The International Monetary Fund (IMF) estimated in 2020 that US–China tariffs could reduce global GDP by nearly 0.5%, representing hundreds of billions of dollars in lost output ^[6]. Even countries not directly involved in the disputes can face slower growth if global investment confidence wanes and consumer demand declines. 

The bottom line is that because the global economy is tightly interconnected, actions taken in Washington can reshape trade balances, shift production hubs, and alter growth trajectories on every continent. For this reason, tariff policy is closely watched not only by US businesses but also by governments and corporations worldwide. 

Shifts in Trade Alliances 

Tariff policies sometimes push countries to form new trade partnerships to strengthen ties with alternative trading partners so as to reduce reliance on US goods and weaken US influence in political negotiations. 

For example, in response to US tariffs during the 2018–2020 trade war, China accelerated efforts to finalise the Regional Comprehensive Economic Partnership (RCEP), a vast Asia-Pacific trade deal covering 15 countries and nearly a third of the world’s population. The agreement was signed in November 2020 and officially entered into force in January 2022.  

While the RCEP signalled a shift in regional trade leadership away from Washington and toward Beijing, for many Asian economies the deal offered more predictable market access and a hedge against volatility from US trade policy. 

Other countries have also sought to deepen partnerships outside the US orbit. After tariffs strained relations with Washington, the European Union pursued stronger ties with Japan, Canada, and Australia. Similarly, Latin American nations have increasingly turned to intra-regional trade agreements, such as Mercosur, to reduce risks from US tariffs.  

Tariffs and the US Economy 

The impact of tariffs on the US economy is complex, touching consumers, workers, and industries in different and sometimes conflicting ways. While tariffs are often intended to protect domestic producers, they frequently come with costs that ripple through the broader economy. The three most visible areas of impact are inflation, industry performance, and jobs. 

Consumer inflation 

One of the clearest ways US tariffs affect households is through higher consumer prices, and this impact has become more visible in 2024 and 2025. When tariffs raise the cost of imports, those increases are often passed down to consumers. The Federal Reserve reported that early 2025 tariff measures contributed to a 0.3 percent increase in core goods prices, adding about 0.1 percent to overall inflation ^[7]. 

Independent studies suggest the effect could be larger. Yale’s Budget Lab estimates that tariffs enacted through 2025 could lift consumer prices by around 2.3 percent in the short run, reducing household purchasing power by an average of $3,800 in 2024-dollar terms ^[8]. Everyday goods such as appliances, electronics, and household items are among the most affected, with both importers and domestic producers raising prices. 

While some businesses initially absorbed part of the added costs, many have since passed them through to consumers. In this sense, tariffs function like a hidden tax, raising the overall cost of living. Between 2024 and 2025, the growing US tariff regime has become a meaningful driver of inflationary pressure, underscoring how trade policy directly shapes consumer budgets. 

Industry performance 

These price increases feed into broader inflationary pressures. Tariffs often target intermediate goods (metals, machinery parts, or electronics, etc.) that serve as inputs for US manufacturers. When those input costs climb, businesses either accept lower profit margins or pass the costs down the line.  

A 2019 Federal Reserve study found that tariffs from the US-China trade war were almost entirely absorbed by American importers, not foreign exporters, meaning the US economy bore the brunt.  

Jobs and employment 

The employment picture is equally mixed. Tariffs can protect jobs in certain sectors, particularly those facing intense foreign competition. For example, US steel tariffs provided some relief for domestic steelworkers by making imported steel less competitive.  

However, this benefit often comes at a cost to other industries. Auto manufacturers and construction firms, which rely heavily on steel and aluminium, faced higher input costs that threatened their margins and employment levels.  

Similarly, when China retaliated against US tariffs by imposing duties on American soybeans and pork, US farmers lost access to one of their largest export markets. The federal government ultimately provided billions of dollars in subsidies to offset those losses. 

Taken together, tariffs create a landscape of winners and losers. Domestic producers of protected goods may benefit in the short term from reduced competition, but exporters and industries reliant on global supply chains often struggle.  

Consumers almost always lose, facing higher prices at the store. The broader economy feels the effects through inflationary pressures, investment uncertainty, and shifting job markets. While tariffs may be effective in shielding specific industries, their wider costs suggest they are a blunt tool that can distort more than they protect. 

Market Reactions to US Tariffs 

Financial markets tend to react quickly to US tariff announcements, due to the direct impact on trade and the broader uncertainty they foster. This is most readily seen across currencies, stocks, and commodities. 

Currencies 

During tariff escalations, the Chinese yuan weakened against the US dollar, reflecting concerns about reduced Chinese export competitiveness and slowing growth. A weaker yuan made Chinese goods cheaper abroad, partially offsetting the tariffs, but it also heightened fears of currency manipulation, drawing international scrutiny.  

Meanwhile, “safe-haven” currencies like the Japanese yen often appreciated as investors sought stability in times of heightened trade uncertainty. The US dollar itself also tended to strengthen against emerging market currencies, as investors pulled money out of riskier markets and into US assets. 

However, the latest US tariffs by Trump were seen by some as harmful to the US economy; this caused the US Dollar to weaken, as investors pivoted to the UK and the Eurozone for greater stability. 

Stocks 

Equity markets frequently dropped on tariff announcements, particularly in sectors tied to global trade such as technology, industrials, and agriculture.  

Upon the unveiling of Trump’s trade tariffs, the stock market reacted sharply, with the Dow Jones falling about 2,231.07 points (approximately 5.5%), the S&P 500 dropping 5.97%, and the Nasdaq declining by nearly 6% ^[9]. Together, nearly US$3 trillion was wiped out in a single day.  

Investors were worried about the broader implications of Trump’s US tariffs on the American and global recovery, which had just recovered from the COVID-19 recession. However, shares of protected industries, like some domestic steel producers, occasionally gained as tariffs shielded them from foreign competition.  

That said, these gains were often offset by broader losses across the market, leaving overall equity indices under pressure. Market sentiment frequently shifted day to day based on whether news suggested trade tensions were escalating or easing, making tariffs a major driver of short-term volatility. 

Commodities 

Tariffs can cause sharp swings in commodity prices, often with global ripple effects. 

Soybeans: US soybean prices fell significantly when China imposed retaliatory tariffs, cutting off one of the largest export markets for American farmers. In contrast, Brazilian soybean exports surged as China turned to alternative suppliers, highlighting how tariffs can instantly redirect trade flows. 

Oil: Trade tensions raised concerns about slowing global growth and reduced demand for energy. As a result, oil prices often dropped during tariff disputes, reflecting investor pessimism about consumption in both advanced and emerging markets. Lower oil prices, in turn, pressured energy companies and exporting nations. 

Metals: Steel and aluminium prices spiked after US tariffs were introduced, benefiting domestic producers who faced less foreign competition. However, these higher input costs squeezed downstream industries like automotive manufacturing and construction, showing how tariffs can shift profits from one sector to another. 

For traders, these market responses underline how tariffs extend far beyond trade policy, shaping investment flows and risk sentiment.  

Markets tend to move not only on the actual tariffs but also on speculation, negotiations, and political signals, making tariff policy one of the most unpredictable forces in modern global finance. 

What Traders Can Learn from US Tariff Moves 

We’ve seen how US tariffs are more than mere taxes on imports; they have proven to be catalysts for market volatility in recent times.  

For traders, their impact is immediate: currencies shift as investors seek safe havens, stocks swing with sector winners and losers, and commodities like oil and soybeans move sharply on tariff headlines. Because retaliation is common, tariff disputes often escalate into prolonged trade wars, creating uncertainty that markets must constantly price in. 

The key takeaway for traders is that tariff policy cannot be ignored. In a globalised economy where politics and markets are tightly linked, tariffs serve as a reminder that trading strategies must account not only for economic fundamentals but also for the unpredictability of policy decisions. 

FAQ 

1. What is a tariff? 

A tariff is a tax that a government places on imported or exported goods. It raises the price of foreign products, making domestic alternatives more competitive and generating revenue for the government. 

Governments often use tariffs to protect local industries, influence trade relationships, or raise revenue. In practice, tariffs can affect everything from consumer prices to global supply chains, shaping how countries trade and compete in the global economy. 

2. What is the main purpose of US tariffs? 

US tariffs are designed to protect domestic industries, generate government revenue, and serve as leverage in trade negotiations. They can also safeguard sectors that are vital to national security, such as energy and manufacturing. 

3. How do US tariffs affect consumers and businesses? 

Tariffs often lead to higher prices for imported goods, which can raise overall inflation. Businesses that rely on imported materials may face increased costs, while some domestic producers benefit from reduced foreign competition. 

4. Why do US tariffs impact global financial markets? 

US tariffs affect global financial markets by disrupting trade flows, raising business costs, and shifting investor sentiment. When tariffs are imposed, they can trigger volatility across currencies, stocks, and commodities as traders react to changing growth expectations. 

For example, tariffs on key materials like steel or technology goods can lift production costs, weaken corporate earnings, and dampen market confidence. Safe-haven assets such as gold or the Japanese yen often strengthen, while risk-sensitive markets tend to retreat as investors brace for slower global growth. 

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