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

US President Donald Trump has said he will double tariffs on Canadian steel and aluminium imports from the planned 25% to 50%.

He has already imposed separate 25% tariffs on other imports from Mexico and Canada, but almost immediately announced an exemption for carmakers and then expanded this to cover other goods.

He has also put in place a 20% levy on Chinese goods.

Canada and China have retaliated with tariffs of their own against US goods, sparking fears of a global trade war.

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. A 20% tariff on Chinese goods means a product worth $10 (£7.76) has an additional $2 charge.

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

The US has typically charged lower tariffs on goods than other countries.

Trump’s new tariffs – and his promise to introduce further “reciprocal” levies on goods from other countries – could lead to a sharp increase in the prices people pay for goods in the US and around the globe.

Tariffs are a central part of Trump’s economic plans. He says tariffs will boost US manufacturing and protect jobs, as well as raising tax revenue and growing the economy.

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

But Trump has accused the three countries of not doing enough to end the flow of migrants and illegal drugs such as fentanyl into the US.

All three countries have rejected the accusations.

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

Outgoing Canadian Prime Minister Justin Trudeau said his country was responsible for less than 1% of fentanyl entering the US, most of which comes from Mexico.

Trump has introduced 25% tariffs on goods from both US neighbours, Canada and Mexico.

These were originally due to start on 4 February but were delayed for a month to allow further negotiations. The 25% tariffs began on 4 March, with a 10% tariff on Canadian energy imports.

On 5 March, Trump announced a month-long tariff exemption for cars made in North America which comply with the continent’s existing free trade agreement, the US-Mexico-Canada agreement (USMCA).

That deal, which was negotiated by Trump during his first term in office, sets out rules for how much of a car must be made in each country to qualify for duty-free treatment.

The Canadian and Mexican tariffs had prompted fears of significant impacts on car manufacturing.

Component parts typically cross the US, Mexican and Canadian borders multiple times before a vehicle is completely assembled.

Shares in leading US carmakers rose after the announcement.

On 6 March Trump expanded the tariff exemption to include other goods shipped under the USMCA.

Items currently covered by the pact’s rules include televisions, air conditioners, avocados and beef, according to analysis by the firm Trade Partnership Worldwide.

Trump also reduced tariffs on potash – a key ingredient for fertiliser used by US farmers – from 25% to 10%.

A White House official said about 50% of US imports from Mexico and 62% from Canada may still face tariffs, although those figures could change.

Mexico also delayed retaliatory tariffs on US goods during the initial month-long pause.

President Claudia Sheinbaum urged Mexicans to “remain calm” over Trump, insisting that “cooler heads will prevail.”

She also agreed to deploy 10,000 troops to the US-Mexico border to help tackle smuggling.

Speaking after the tariffs came into force on 4 March, she said the US decision had “no justification”, and promised to respond with “tariff and non-tariff measures”.

However, before these were set out, Trump announced the concessions for carmakers and other goods, which she welcomed.

While Trump has been very critical of his Canadian counterpart Trudeau, he has praised Sheinbaum, writing on his social media site, Truth Social, that “our relationship has been a very good one and we are working hard, together, on the border.”

The US imports more steel than any other country – and Canada, Brazil and Mexico are its top three suppliers.

Canada is also the largest supplier of aluminum to the US, providing almost 60% of the amount imported.

When Trump first announced that a 25% tariff on steel and aluminium imports would start on 12 March, he said there would be no exceptions.

When he announced that this levy would be doubled for metals coming from Canada on on 11 March, he said it was because of that country’s decision to charge US energy customers more.

Writing on Truth Social, he said: “Based on Ontario, Canada, placing a 25% Tariff on ‘Electricity’ coming into the United States, I have instructed my Secretary of Commerce to add an ADDITIONAL 25% Tariff.”

American companies that use steel and aluminium to make products have warned the tariffs could push their prices up.

Trump previously announced tariffs of 25% on steel and 10% on aluminium in 2018, during his first term as president.

However, he later negotiated exceptions for many countries including Australia, Canada and Mexico.

Despite those previous 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.

A 10% charge on all goods imported from China started on 4 February.

Trump later said shipments worth less than $800 would be exempt.

On 10 February, China responded with its own tariffs, including a 10-15% tax on some US agricultural goods.

Beijing has also targeted various US aviation, defence and tech firms by adding them to an “unreliable entity list” and imposing export controls.

The 10% levy doubled to 20% on 4 March.

China urged the US to return to dialogue with Beijing as soon as possible.

“If the United States… persists in waging a tariff war, a trade war, or any other kind of war, the Chinese side will fight them to the bitter end,” foreign ministry spokesman Lin Jian warned.

All goods from China worth more than $800 are covered by the 20% tariff.

Non-exempt goods imported from Mexican and Canada are subject to a 25% levy.

Canadian energy exports to the US face a 10% tariff, which could affect a broad range of businesses.

Steel and aluminium imports from Canada will be taxed at 50%, while those from the rest of the world will be taxed at 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.

Many economists have warned that Trump’s latest round of tariffs could prompt a wider trade war that could put prices up more generally.

Trump previously told the BBC the UK was “out of line”, but suggested a solution could be “worked out“.

The UK exports pharmaceutical products, cars and scientific instruments to the US.

Business Secretary Jonathan Reynolds said the UK should be excluded from tariffs because it buys more from the US than it sells there.

Speaking in Parliament after the announcement of the steel and aluminium tariffs, Trade Minister Douglas Alexander promised a “cool and clear-headed” response.

During his 26 February cabinet meeting, Trump said he would announce sanctions on EU goods “very soon”.

“It’ll be 25% generally speaking and that will be on cars and all other things,” he added.

The US had a trade deficit of $213bn with the EU in 2024 – something Trump has previously described as “an atrocity”.

In response, the European Commission said it would react “firmly and immediately against unjustified tariffs”.

US companies Harley Davidson and Jack Daniel’s have previously faced EU tariffs.