Who Wins and Loses When America Raises Tariffs?

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A 25% tariff on foreign steel might save a mill job in Ohio, but it could also raise the cost of building cars in Michigan and homes in Arizona. A tax on Chinese solar panels might protect a few American factories, but it could eliminate thousands of installation jobs across the country.

This is the reality of tariffs—a simple tax on imports that creates economic winners and losers. While politicians debate their merits, the actual impacts play out in boardrooms, factories, farms, and family budgets across America.

Revenue collected at the border might help reduce the federal deficit, but it can be offset by billions in aid required to support farmers targeted by retaliatory tariffs. The benefits are often concentrated and visible, while the costs are diffuse and hidden.

Understanding who really wins and loses from tariffs requires looking beyond political rhetoric to examine the hard economic evidence.

What Tariffs Do

A tariff is a tax imposed on goods crossing America’s borders. When foreign products arrive at one of 328 U.S. ports of entry, U.S. Customs and Border Protection collects these fees from importing companies.

The legal responsibility falls on the “importer of record”—typically a U.S. company or customs broker—which must pay within 10 days of the goods’ arrival.

Two Main Types

Ad Valorem Tariffs: A percentage of the imported goods’ value. A 10% tariff on a $1,000 shipment costs $100. This is the most common type.

Specific Tariffs: A fixed fee per unit, such as $2 per imported shirt regardless of value.

Why Governments Use Tariffs

Modern tariffs serve strategic rather than fiscal purposes. Primary goals include:

• Protecting domestic industries from foreign competition
• Safeguarding sectors deemed critical to national security
• Generating government revenue (now a minor purpose)
• Retaliating against unfair trade practices
• Creating leverage in international negotiations

The Classification System

Every imported product must be classified according to the Harmonized Tariff Schedule of the United States (HTSUS). This vast catalog assigns unique codes to virtually every item, from different cheese types to specific shoe styles.

These HTS codes determine applicable tariff rates. Passenger cars generally face 2.5% tariffs, while certain golf shoes face 6% rates. Rates can be lower or zero for countries with Free Trade Agreements.

Who Sets the Rates

The Constitution grants Congress power to “lay and collect… Duties” and “regulate Commerce with foreign Nations.” However, since the 1930s, Congress has delegated significant authority to the President through various statutes:

• Section 232: Authorizes tariffs on imports threatening national security
• Section 301: Allows action against unfair foreign trade practices
• Section 201: Empowers temporary “safeguard” tariffs when import surges injure U.S. industries

Arguments For Tariffs	Arguments Against Tariffs
Protects domestic industries from unfair competition	Increases prices for consumers
Safeguards critical national security industries	Hurts industries using imported materials
Creates or saves high-quality domestic jobs	Invites costly retaliation against U.S. exports
Generates government revenue	Reduces overall economic growth
Provides negotiating leverage	Leads to net job losses economy-wide
Helps address trade imbalances	Creates economic uncertainty

Winner #1: The U.S. Treasury

The most direct beneficiary of tariffs is the government that collects them. Every dollar paid to customs flows into the U.S. Treasury, where it can fund operations or reduce the federal deficit.

From Primary Source to Minor Player

For the first 125 years of American history, tariffs were the federal government’s lifeblood. Before the federal income tax was established in 1913, customs duties provided the primary revenue source, funding everything from military operations to basic government functions.

Today, that role has dramatically diminished. Over the past 70 years, tariffs have rarely exceeded 2% of total federal revenue. In fiscal year 2024, the $77 billion collected represented just 1.57% of government receipts.

This shift freed tariffs from fiscal constraints. Because the government doesn’t depend on tariff revenue to function, it can use them strategically to protect industries or achieve foreign policy goals without budget concerns.

Recent Revenue Surge

Despite their small budget share, absolute tariff collections have surged recently. After long periods of relatively low tariffs, new duties caused revenue to double from about $37 billion in fiscal 2015 to $74 billion in fiscal 2020.

In mid-2025, Treasury Secretary Scott Bessent announced the government had already collected $100 billion in tariffs that year, with potential to reach $300 billion by year-end.

Long-Term Projections

The Congressional Budget Office estimates that tariffs implemented in 2025 would reduce federal deficits by a net $2.8 trillion over 2025-2035. However, this figure reflects three competing effects:

• Increased tariff collections: Direct revenue from the tariffs
• Reduced interest payments: Lower borrowing costs due to new revenue
• Decreased other tax revenue: Smaller economy reducing income and corporate tax collections

This reveals a fundamental conflict: effective protectionist tariffs discourage imports and reduce tariff revenue, while high-revenue tariffs function more as consumption taxes than protective shields.

Winner #2: Protected Domestic Industries

The primary goal of protective tariffs is benefiting specific domestic industries and workers. By raising foreign competitors’ prices, tariffs aim to shift demand toward American-made products.

Steel and Aluminum: The Biggest Winners

American steel and aluminum industries have been the most prominent recent beneficiaries. Citing national security concerns, the U.S. imposed tariffs—initially 25% on steel and 10% on aluminum, later raised to 50% for both—arguing that healthy domestic metals industries are essential for military hardware and infrastructure.

Corporate Beneficiaries: U.S. steel giants like U.S. Steel, Cleveland-Cliffs, Nucor Corporation, and Steel Dynamics have directly benefited. The policies allowed them to increase domestic prices, capture market share, and improve profit margins. Tariff announcements often trigger immediate stock price increases.

Investment Catalyst: Protection has sparked major domestic investment. Companies have pledged over $10 billion for new, technologically advanced steel mills in Florida, Arkansas, Texas, and Arizona. This investment increases capacity while often improving environmental performance.

High-Wage Jobs: Steel industry jobs are among manufacturing’s best-paying, with steelworkers earning an average of $117,200 in 2021. Companies like Nucor and Steel Dynamics have profit-sharing programs, directly sharing financial gains with employees.

Solar Manufacturing Renaissance

Tariffs on imported solar panels, primarily targeting Chinese products, combined with Inflation Reduction Act incentives, have created a “push and pull” strategy catalyzing domestic investment.

The results have been dramatic:

• U.S. solar module production capacity increased more than fivefold by October 2024
• Companies announced plans for over 95 gigawatts of new manufacturing capability across the solar supply chain
• Domestic manufacturers like First Solar praised tariffs as “major wins” that level the playing field

Other Protected Sectors

Various industries benefit from targeted protection:

• Legacy Industries: U.S. paper clip production is protected by 127% tariffs on Chinese imports, while 20% tariffs on athletic shoes benefit New Balance, the last major domestic producer
• Energy Companies: Firms with large U.S. production footprints could gain from oil and gas import tariffs
• Defense Contractors: Companies like Lockheed Martin and Boeing may see increased orders as procurement prioritizes U.S.-made equipment

Who Really Pays: The Economic Reality

While politicians often claim foreign countries pay tariffs, the economic reality is far more complex. The legal obligation falls on U.S. importers, but the final burden gets distributed across a complex chain.

Legal vs. Economic Burden

Legally, U.S. importing firms pay tariffs directly to U.S. Customs and Border Protection. Foreign governments pay nothing. But the firm writing the check isn’t necessarily the one feeling the financial pain.

Economic costs get shared among three groups: foreign exporters, U.S. businesses, and U.S. consumers. The distribution depends on market competition and negotiating power.

Three Ways the Cost Gets Distributed

Scenario 1: Foreign Exporters Absorb Costs

In highly competitive markets, foreign producers may lower pre-tariff prices to keep products attractive. The foreign company effectively “pays” by accepting lower profit margins.

After 2018 steel tariffs, some European Union and Japanese exporters lowered prices to partially offset new taxes and maintain U.S. market share.

Scenario 2: U.S. Businesses Absorb Costs

U.S. companies importing goods may not be able to pass full tariff costs to customers without losing sales. This is especially true for retailers in competitive sectors. The company’s profit margin shrinks as it absorbs the tax.

Initial research on 2018-2019 Chinese tariffs found many U.S. retailers and wholesalers bore costs this way, at least short-term.

Scenario 3: U.S. Consumers Bear the Burden

According to broad economic consensus, this is the most common result. U.S. importing businesses pass tariff costs to end consumers through higher retail prices.

Research by economists Mary Amiti, Stephen Redding, and David Weinstein found “nearly complete pass-through” of 2018 tariff costs to U.S. firms and consumers. For every dollar of tariffs imposed, prices paid by U.S. buyers increased by a dollar.

The Ripple Effect

Impact extends beyond tariffed imports themselves. By making foreign products more expensive, tariffs reduce domestic market competition. This gives domestic producers market power to raise their own prices, even though their products aren’t subject to tariffs.

A 25% tariff on Chinese televisions not only raises that specific TV’s price but also allows Mexican or American TV manufacturers to increase their prices, knowing their main foreign competitor is less threatening.

Some research documents “over-shifting” where a $1 tariff leads to price increases exceeding $1. A solar tariff study found that a $1 tariff on imported components resulted in $1.35 increases in final installed system prices as supply chain firms used disruption to pad margins.

The Biggest Losers: Industries Using Imported Materials

While tariffs protect some domestic industries, they simultaneously tax many others. American companies relying on imported raw materials, parts, and components face higher production costs, eroded competitiveness, and potential job losses.

The Downstream Tax Effect

When the U.S. places tariffs on foundational goods like steel, aluminum, or semiconductors, it effectively taxes every American company using those materials. U.S. manufacturers must pay more for essential inputs while foreign competitors don’t face the same cost increases.

This disadvantage affects some of the largest U.S. economic sectors.

The Automotive Industry

The auto industry exemplifies downstream harm. As massive consumers of steel and aluminum, plus imported electronic and mechanical parts, automakers’ costs are highly sensitive to trade policy.

A typical car contains roughly half a ton of steel, meaning steel tariffs directly translate to higher vehicle production costs. One analysis estimated that 50% steel tariffs could increase average vehicle production costs by over $2,000.

Major automakers like Ford and Subaru have publicly stated that tariffs would force them to raise consumer prices, hurting sales and competitiveness.

The Construction Sector

Construction is the single largest U.S. iron and steel user, accounting for 28% of total demand. It’s also a major aluminum consumer and, for residential building, softwood lumber user.

Tariffs on these fundamental materials directly increase costs for building homes, offices, bridges, and infrastructure. Higher costs get passed to homebuyers and businesses or shrink construction firm profit margins, potentially reducing investment and projects.

The Solar Installation Paradox

The solar industry illustrates tariff trade-offs starkly. While tariffs on imported panels benefit the relatively small U.S. manufacturing sector, they significantly harm the much larger installation and project development sector.

Installation employs 64% of solar workers and relies on affordable panels to grow. By increasing panel prices, tariffs slow solar deployment nationwide. One study concluded that without tariffs, U.S. solar demand would have been 17.2% higher.

The Solar Energy Industries Association estimated that 2018 tariffs caused over 62,000 job losses in the broader solar ecosystem and canceled $19 billion in private investment.

The Jobs Paradox

This solar dynamic reflects a broader economic phenomenon: jobs created in protected industries are typically far outnumbered by jobs lost in downstream industries using protected goods as inputs.

Research consistently finds that for every job created in the steel industry by tariffs, anywhere from 46 to 80 jobs are put at risk in steel-consuming sectors. A Federal Reserve study concluded that 2018 steel and aluminum tariffs led to a net loss of 75,000 U.S. manufacturing jobs.

The Peterson Institute for International Economics estimated that 2018 steel tariffs cost the U.S. economy over $900,000 per year for every job created—a figure other studies place between $650,000 and $815,000 per job.

Industry/Sector	Impact	Reason
Steel Production	Winner	Reduced foreign competition, higher domestic prices
Aluminum Production	Winner	Reduced foreign competition, higher domestic prices
Solar Manufacturing	Winner	Reduced import competition, IRA incentives
Automotive Manufacturing	Loser	Higher input costs for steel, aluminum, imported parts
Construction	Loser	Higher costs for steel, aluminum, lumber
Solar Installation	Loser	Higher panel costs slow deployment
Agriculture (Exporters)	Loser	Subject to retaliatory tariffs
Technology Hardware	Loser	Reliance on imported components

The Retaliation Effect: When Trade Wars Hit Back

Tariff imposition rarely goes unanswered. In today’s connected global economy, it almost inevitably triggers responses. When the U.S. places tariffs on imports, trading partners typically retaliate with their own tariffs on U.S. exports.

Agriculture: The Primary Target

No U.S. economic sector has been more consistently targeted by retaliatory tariffs than agriculture. With over 20% of production sold overseas, the farm economy is deeply dependent on global market access.

Trading partners strategically target American agriculture’s crown jewels:

• Soybeans: Hit with massive Chinese retaliatory tariffs
• Pork, Beef, Poultry: Targeted by China and Mexico
• Corn, Wheat, Sorghum: Targeted by China
• Dairy Products: Targeted by Canada, Mexico, and China
• Fruits and Nuts: Targeted by China and the European Union

The Financial Devastation

A comprehensive USDA study estimated that retaliatory tariffs led to over $27 billion in lost U.S. agricultural exports between mid-2018 and end-2019. China’s retaliation accounted for about 95% of this total.

The Soybean Collapse: Before the trade war, China purchased about 60% of U.S. soybean exports—over $12 billion in 2017. When China imposed 25% retaliatory tariffs in 2018, the market evaporated. U.S. soybean exports to China crashed to just $3.1 billion that year.

State-Level Pain: Damage concentrated in agricultural heartland states. Iowa suffered $1.46 billion in annualized losses, Illinois $1.41 billion, and Kansas $955 million.

The Bailout Feedback Loop: Damage was so severe it necessitated massive federal bailouts. The government used revenue from its own tariffs to pay for damage caused by predictable retaliation. The USDA provided approximately $25.7 billion in direct farmer aid in 2018-2019, with another analysis finding $61 billion in total taxpayer aid to offset Chinese retaliation.

Retaliating Country	Key U.S. Products Targeted	Estimated Impact
China	Soybeans, Pork, Beef, Corn, Dairy, Fruits	~$25.7 billion lost exports (2018-2019)
European Union	Corn, Rice, Whiskey, Peanut Butter	~$0.6 billion lost exports (2018-2019)
Canada	Dairy, Poultry, Coffee, Wine, Fruit	$5.8 billion of products targeted
Mexico	Pork, Cheese, Apples, Potatoes	~$0.5 billion lost exports (2018-2019)

Long-Term Market Loss

Beyond immediate financial losses, many agricultural economists argue the greatest harm is long-term market share erosion and reputation damage as an unreliable supplier.

When retaliatory tariffs make U.S. products prohibitively expensive, large buyers find new sources. The U.S.-China trade war directly fueled Brazil’s rise as the world’s dominant soybean exporter. China secured long-term purchasing agreements with South American producers, establishing new supply chains.

During the trade war’s height, Brazil’s Chinese soybean market share soared to 82%, while the U.S. share collapsed to 18%. Once these relationships and logistics networks are established, they’re incredibly difficult to win back.

The Big Picture: Economy-Wide Effects

Beyond specific industry impacts, tariffs have broad effects on the entire U.S. economy. Macroeconomic analyses consistently find that while tariffs may benefit narrow segments, their overall impact is net negative.

Impact on American Households

For average families, the most direct tariff effect is increased living costs. By taxing imported goods, tariffs raise prices and reduce purchasing power.

Cost per Household: Analysis of 2025 tariffs by the Yale Budget Lab projects average annual income losses of $2,400 per U.S. household due to resulting price increases.

Specific Price Increases: The same analysis projects significant short-term price hikes including:

• 13.5% increase for motor vehicles (adding about $6,500 to average new car prices)
• 37% increase for apparel
• 39% increase for shoes

Inflationary Pressure: Both the Congressional Budget Office and Federal Reserve conclude that tariffs contribute to inflation. The CBO estimates 2025 tariffs will add 0.4 percentage points to annual inflation rates in 2025-2026.

GDP and Employment Effects

Mainstream economic consensus, supported by government analyses, finds that tariffs drag on overall economic growth.

GDP Impact: The CBO estimates that 2025 tariffs will cause real U.S. GDP to be 0.6% lower by 2035 than otherwise—a permanent economy reduction.

Net Employment Effects: While tariffs create jobs in protected sectors, losses elsewhere more than offset gains. One analysis projects 2025 tariffs will result in 553,000 fewer payroll jobs and 0.4 percentage point higher unemployment by end-2025.

The model shows modest manufacturing expansion (+2.0%) being swamped by contractions in larger sectors like construction (-3.6%) and agriculture (-0.8%).

Economic Indicator	CBO Projected Impact of 2025 Tariffs
Federal Deficit (2025-2035)	$2.8 trillion reduction
Real GDP Level (by 2035)	-0.6% lower than baseline
Annual Inflation (2025-2026)	+0.4 percentage points
Payroll Employment (by end-2025)	-553,000 jobs

Historical Warning: The Smoot-Hawley Lesson

To understand widespread protectionism’s potential risks, economists and historians point to the Smoot-Hawley Tariff Act of 1930 as a powerful cautionary tale.

Enacted at the Great Depression’s beginning, the act raised U.S. tariffs by an average of 20% on more than 20,000 imported goods. The goal was protecting American farmers and factories from foreign competition.

The Disaster That Followed

The result is widely regarded as historic policy disaster that significantly deepened the global economic crisis:

Global Trade War: The act triggered immediate, severe retaliation from U.S. trading partners. Within two years, two dozen countries had enacted their own punitive tariffs.

Trade Collapse: The ensuing trade war caused international commerce to grind to a halt. World trade plummeted by an estimated 66% between 1929 and 1934. U.S. exports fell 61%, imports fell 66%.

Depression Deepening: While not the sole cause, the trade collapse and resulting confidence loss shattered the international economic system. It contributed to bank failures and pushed U.S. unemployment to 25%.

Smoot-Hawley remains the ultimate example of how “beggar-thy-neighbor” policies can backfire, harming not only the global economy but the nation that enacted them.

The Complex Reality of Trade Policy

Modern tariffs create intricate patterns of winners and losers that defy simple political narratives. Steel tariffs might save a few thousand manufacturing jobs while putting hundreds of thousands of others at risk. Solar panel tariffs might protect domestic manufacturers while eliminating far more installation jobs.

Concentrated Benefits, Diffuse Costs

Tariffs create classic economic patterns: concentrated benefits for protected industries and diffuse costs spread across the broader economy. Steel tariffs provide clear benefits to steelworkers and companies, but costs spread across all steel-using industries and consumers.

This creates political dynamics where protected industries have strong incentives to lobby for tariffs, while the broader population bearing costs has less incentive to organize opposition.

The Measurement Challenge

Calculating tariff impacts is increasingly complex in today’s global economy. Traditional measures focus on direct trade effects, but modern analysis must consider supply chain disruptions, trade diversion, investment effects, and productivity impacts.

The “iPhone example” illustrates this complexity. While assembled in China, iPhones contain components and intellectual property from dozens of countries, including significant U.S. content. A tariff on Chinese iPhone imports is partially a tax on American innovation and components.

Political vs. Economic Logic

Tariffs often follow political rather than economic logic. Industries with political clout in key states may receive protection regardless of economic efficiency. This explains why farmers receive substantial government support when hit by retaliation—agricultural states’ political importance.

Once industries receive protection, they develop strong vested interests in maintaining it, making tariffs persistent even when economic analysis suggests they’re counterproductive.

The Bottom Line

Tariffs are blunt instruments that create complex economic ripple effects. While they can protect specific industries and workers, they typically impose larger costs on the broader economy through higher prices, reduced competition, and retaliation.

The benefits are often visible and concentrated—a reopened steel mill, a new solar factory. The costs are usually hidden and diffuse—higher car prices, slower solar deployment, lost export markets.

Understanding these trade-offs is crucial for evaluating trade policy. The question isn’t whether tariffs create any winners—they do. The question is whether the benefits justify the costs, and whether there are better ways to achieve the same goals.

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