What are tariffs, why is Trump using them, and will prices rise?

US President Donald Trump has announced a 25% tariff on all steel and aluminium imports.

He has already introduced a 10% tax on all products from China – which has responded with its own measures – and has threatened to introduce tariffs on products from Canada and Mexico.

Trump says tariffs will boost the US economy and “protect” the country from illegal immigration and the flow of drugs.

Tariffs are taxes charged on goods imported from other countries.

The companies that bring the foreign goods into the country pay the tax to the government.

Typically, tariffs are a percentage of a product’s value. The 10% tariff on Chinese goods means a product worth $10 would have an additional $1 charge applied to it.

Firms may choose to pass on some or all of the cost of tariffs to customers.

Tariffs are a central part of Trump’s economic plans. He promised to introduce import duties against some of America’s main trade partners during his election campaign.

He says tariffs will boost US manufacturing and protect jobs, as well as raising tax revenue and growing the economy.

The White House said said the president was also “taking bold action to hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country.”

Fentanyl is linked to tens of thousands of overdose deaths in the US each year.

The Trump administration says the chemicals come from China, while Mexican gangs supply it illegally and run fentanyl labs in Canada. Canadian Prime Minister Justin Trudeau said his country was responsible for less than 1% of fentanyl entering the US.

Canada also provided more than 50% of the aluminium imported into the US in 2024.

Shares of US steelmakers rose following the announcement. However, American companies which use steel and aluminium to make products have warned the tariffs could put their prices up.

The Canadian government said the tariffs were “totally unjustified” and vowed swift retaliation.

Trump previously announced tariffs of 25% on steel and 15% on aluminium in 2018, during his first term as president. However, he subsequently negotiated exceptions for many countries including Australia, Canada and Mexico.

Despite the exemptions, tariffs raised the average price of steel and aluminium in the US by 2.4% and 1.6% respectively, according to the US International Trade Commission.

Together, China, Mexico and Canada accounted for more than 40% of imports into the US in 2024.

China

A 10% charge on all goods imported from China to the US took effect on 4 February. Trump then said shipments worth less than $800 (£645) would be exempt.

Beijing retaliated with its own tariffs, which took effect on 10 February. These include a 15% tariff on US coal and liquefied natural gas products, and a 10% tariff on crude oil, agricultural machinery and large engine cars.

China has repeatedly voiced its opposition to a trade war with the US.

Canada

A proposed tariff of 25% on all goods entering from Canada was also due to begin on 4 February. However, this was delayed for 30 days.

Canada also paused its own retaliatory tariff of 25% on 155bn Canadian dollars’ worth ($107bn; £86bn) of US imports.

PM Trudeau said Canada was implementing a “$1.3bn border plan” to add “new choppers, technology and personnel to border,” as well as “increased resources to stop the flow of fentanyl”. Much of the border security plan had already been announced.

Trump said the delay would allow the US to see “whether or not a final economic deal with Canada” could be reached.

Mexico

The proposed 25% tariffs against Mexico have also been delayed a month, as have new measures by Mexico against US goods.

Mexican President Claudia Sheinbaum agreed to send 10,000 members of the National Guard to the US-Mexican border to “prevent the trafficking of drugs, in particular fentanyl”.

Sheinbaum said the US had in turn agreed to increase measures to prevent the trafficking of high-powered US weapons into Mexico.

All goods from China worth more than $800 are covered by the 10% tariff.

Economists warn that firms selling imported goods are likely to increase prices for US consumers, to cover the cost of the duty.

If the measures against Mexican and Canadian imports go ahead, items they produce are also expected to become more expensive.

Car manufacturing could be hit extremely hard. Vehicle parts cross the US, Mexican and Canadian borders multiple times before a vehicle is completely assembled.

The average US car price could increase by $3,000 because of the import taxes, financial analyst TD Economics suggested.

Other goods from Mexico which could be affected include fruit, vegetables, spirits and beer.

Canadian goods such as steel, timber, grains and potatoes are also likely to get more expensive.

Canadian energy would face a 10% tariff instead of 25%.

US tariffs on imported washing machines between 2018 and 2023 increased the price of laundry equipment by 34%, according to official statistics. Prices fell once the tariffs expired.

Some experts suggest that Trump’s new round of tariffs could prompt a wider trade war which could put prices up more generally.

Capitol Economics said the annual rate of US inflation could increase from 2.9% to as high as 4%.