tariffs
This article marks the beginning of a new series, Principles of Government, where we explore key legal concepts shaping public discourse. Our goal is to provide a clear, unbiased, and nonpolitical explanation of these issues, allowing readers to form their own opinions on the social, political, and economic impacts. As new developments arise, we will continue expanding this series to keep you informed.
Tariffs have been a widely discussed issue recently, particularly as President Trump considers implementing new or increased tariffs on imported goods. More broadly, tariffs have played a central role in U.S. trade policy for centuries, shaping economic growth, international relations, and domestic industries. While they are often used to protect American businesses from foreign competition, tariffs can also lead to higher prices for consumers and retaliatory measures from other countries.
Agriculture, in particular, has long been sensitive to tariffs. Farmers and agribusinesses rely on imported equipment, fertilizers, and other inputs, meaning tariffs can raise production costs. At the same time, American agricultural products exported abroad can be subject to retaliatory tariffs, making them more expensive and less competitive in foreign markets. Understanding how tariffs work, who pays them, and the legal authority behind their implementation is crucial for assessing their broader economic and political impact. In this article, we will break down the fundamentals of tariffs, their role in U.S. trade policy, and the source of authority to impose tariffs.
What Is a Tariff?
A tariff is a tax or duty imposed by a government on imported goods. Tariffs serve several purposes, including generating revenue for the government, protecting domestic industries from foreign competition, and sometimes serving as a tool in international trade negotiations. When a country imposes tariffs, it raises the cost of imported goods, making domestically produced alternatives more competitive. Tariffs are typically applied as a percentage of the value of the imported goods but can be a fixed amount per unit of goods.
Who Pays the Tax on a U.S. Tariff?
When the U.S. imposes a tariff on imported goods, the tax is paid by the importer of record, typically a U.S. company or individual bringing the goods into the country. The foreign exporter does not pay the tariff directly. Instead, the importer must pay the tariff before the goods clear customs. To offset this cost, the importer may either pass it on to consumers through higher prices or absorb it, reducing their profit margin.
Where Does the Tax Go?
The tariff revenue collected by U.S. Customs and Border Protection is deposited into the U.S. Treasury's general fund. This money is not earmarked for a specific program but becomes part of the government’s overall revenue, which can be used for federal spending, such as infrastructure, defense, or social programs.
Example
U.S. Flour Co. purchases wheat from Canada Wheat Co. for $1 million. The U.S. government imposes a 25% tariff on all Canadian wheat imports. As a result, U.S. Flour Co. must pay an additional $250,000 in tariff duties to U.S. Customs and Border Protection before the wheat can clear customs. This increases the total cost of the imported wheat to $1.25 million, which U.S. Flour Co. may either absorb or pass on to consumers through higher prices.
What is the Purpose of Tariffs?
The U.S. imposes tariffs for several key reasons, each serving different economic, political, and strategic objectives. These include:
1. Protecting Domestic Industries
Tariffs make imported goods more expensive, helping domestic producers compete with foreign competitors. This protection is particularly useful in industries where lower-cost imports might otherwise drive U.S. companies out of business.
2. Generating Government Revenue
Historically, tariffs were a primary source of federal revenue before the income tax was established. While less significant today, tariff revenues still contribute to the U.S. Treasury’s general fund and help finance government operations.
3. Addressing Trade Imbalances
By making imports more expensive, tariffs can reduce reliance on foreign goods and encourage domestic production. This can help address trade deficits by limiting the amount of money flowing out of the U.S. to pay for imports.
4. Retaliating Against Unfair Trade Practices
Tariffs are often used as a tool to respond to unfair trade practices, such as subsidies, dumping (selling goods below market value), or intellectual property theft by foreign nations.
5. Protecting National Security
Certain tariffs are imposed to safeguard industries critical to national security, such as steel, aluminum, and semiconductor manufacturing.
6. Strengthening Foreign Policy and Diplomacy
Tariffs can be used as a foreign policy tool to pressure other countries into trade negotiations or compliance with international agreements. They can also serve as leverage in broader geopolitical strategies.
What is the Legal Authority to Impose Tariffs?
The power to impose tariffs in the United States originates from the U.S. Constitution. Specifically, Article I, Section 8, Clause 1 grants Congress the authority "to lay and collect Taxes, Duties, Imposts and Excises." Additionally, Clause 3 of the same section, known as the Commerce Clause, gives Congress the power to "regulate Commerce with foreign Nations."
While Congress has the constitutional authority to impose tariffs, it has delegated much of this power to the executive branch through legislation. Several key laws provide the legal foundation for U.S. tariff policy:
- The Tariff Act of 1930 (Smoot-Hawley Tariff Act) – This law, originally designed to protect American industries during the Great Depression, set high tariff rates on many imported goods. Although many of its tariffs have been reduced over time, the law remains a foundation for U.S. trade policy.
- Section 232 of the Trade Expansion Act of 1962 – This law allows the President to impose tariffs on imports that threaten national security.
- The Trade Act of 1974 – This legislation provides the President with the ability to negotiate trade agreements and adjust tariffs, particularly in cases involving unfair trade practices by foreign nations.
So, while the authority to impose tariffs is exclusive to Congress in the Constitution, Congress has ceded at least some of its power to the President.
Conclusion
Tariffs play a significant role in U.S. trade policy, serving as tools for economic protection, revenue generation, and international diplomacy. While they can shield domestic industries and address unfair trade practices, they also have broader consequences, such as higher consumer prices and potential trade disputes. Understanding the legal framework behind tariffs helps clarify how and why they are implemented.
As we continue our Principles of Government series, we will explore more fundamental legal concepts that shape national and global policy, providing you with the knowledge to assess their impacts for yourself.
Tags: tariffs, principles of government
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The new presidential administration has raised the possibility of enacting tariffs, leading many to ask us how tariffs work and how they will affect agriculture. The tariff power is one of those topics that might have us reaching back to the last civics or government class we took and raising some questions. For example, what is the source of tariff authority, when can the government levy a tariff, and how does the tariff process play out?
A desire to answer such questions led us to develop a new blog series on the "Principles of Government." In this series, we endeavor to review and enhance our knowledge of our government and how it works. We'll begin the series this week with an explanation of the tariff power, then we'll tackle other topics like executive orders, administrative agency authority, and the Constitution. But first, we offer an answer from our OSU colleagues on the important question of how potential tariffs could affect agriculture. Thank you to our guest expert authors for the following article, which helps us understand how tariffs against Canada and Mexico could impact agriculture.
Authors:
Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Dept. of Agricultural, Environmental, and Development Economics, Ohio State University
Chris Zoller, Interim Assistant Director Agriculture & Natural Resources (ANR), Ohio State University Extension
First Trade Policy Announcement(s) by the New Administration
Both before and after the 2024 presidential election, the trade policy community has been speculating about and discussing the likely economic impact of tariffs an incoming administration might implement once in office. With the inauguration of President Trump on January 20, we now have the first view of what could be in store for US trade policy. Specifically, while new tariffs have not been imposed immediately, the President indicated the possibility that 25 percent tariffs would be applied to imports from Canada and Mexico as of February 1 (Reuters, January 20, 2025). Surprisingly, the much talked of hike in tariffs to 60 percent on all imports from China, and a 10 percent tariff on imports from the rest-of-the-world, have yet to be announced, the President instead ordering the Office of the US Trade Representative (USTR) to investigate unfair trading practices globally, and whether China complied with the US-China Phase 1 Trade Agreement signed in 2020 (Bloomberg, January 20, 2025).
Potential Impact of Tariffs on US Agricultural Sector
With the integrated agricultural market that has evolved under the North American Free Trade Agreement (NAFTA), and its renegotiated successor the US-Mexico-Canada-Agreement (USMCA), it should come as no surprise that Mexico and Canada are the top-two US agricultural export markets at $29.9 and $29.2 billion respectively (USDA/FAS, Outlook for US Agricultural Trade, November 2024). Given the importance of these two markets to US farmers, and also in light of the declining US share of China’s imports of feed grains and soybeans (Glauber, IFPRI, December 2024), a trade war between USMCA members has the potential to have a serious impact on future US farm incomes. However, any analysis of the impact of such tariffs is an exercise in economic forecasting, and will also depend on the extent to which Mexico and Canada choose to retaliate, although Canada has already indicated it will respond in kind (Associated Press, January 20, 2026).
Agricultural economists at North Dakota State University have recently analyzed various US tariff scenarios (Steinbach et al., farmdoc, and Food Policy, 2024), which they have updated to include the impact of 25 percent tariffs against Canada and Mexico (Steinbach et al., CAPTS, 2024). Their analysis focuses on the potential export market losses in 2025 for 11 agricultural commodities, using baseline export projections for 2025 from the World Agricultural Board’s (WAOB) demand and supply estimates (WAOB, 2024). The sensitivity of US agricultural exports to the imposition of foreign tariffs is based on published estimates from the 2018/19 trade wear (Grant et al., Applied Economic Perspectives and Policy, 2021).
In the following table, three scenarios are reported for five commodities: soybeans, corn, dairy products, beef and beef products, and pork and pork products, along with total projected losses for the US agricultural sector. Scenario 1 assumes 25 percent US tariffs on Canadian imports are met with 25 percent Canadian tariffs on US imports; Scenario 2 assumes 25 percent US tariffs on Mexican imports are met with 25 percent Mexican tariffs on US imports; and Scenario 3 combines Scenarios 1 and 3 with tit-for-tat additional US/Chinese tariffs of 10 percent. The latter scenario is included here given President Trump has also signaled he will introduce an additional 10 percent tariff on imports from China as of February 1 (Guardian, January 22, 2025).
Source: Steinbach et al., 2024
While the total forecast losses to the agricultural sector are quite similar for Canada and Mexico, there is clear variation across key commodities, and forecast losses for the listed commodities are also higher for US/Mexican tariffs as compared to US/Canadian tariffs. Importantly, these forecast losses increase if additional 10 percent tariffs are levied on Chinese imports, and subsequently matched by China.
While not reported in the table, if the United States were also to levy 60 percent tariffs on all Chinese imports, and 10 percent tariffs on all imports from the rest of the world, with tit-for-tat retaliation, the total value of US agricultural exports for 2025 are forecast to decline 34.4 percent, i.e., a loss of $60.6 billion. In this scenario, US soybeans would be the most vulnerable, followed by wheat and corn. At the state level, Ohio agriculture is forecast to lose -$705 million in export value in 2025 if the most extreme scenario plays out, with a loss of -$359 million for soybean exports.
Although these expected losses are obviously subject to forecast error, at a time when commodity prices have been falling, additional uncertainty about export markets due to changing US trade policy will likely exacerbate any financial stress faced by US farmers. It will also place additional pressure on the federal government to consider ways of reducing sectoral stress through further ad hoc payments to farmers similar to the Market Facilitation Program (MFP) applied during the 2018/19 trade war.
Financial planning is always a critical component of operating a farm business, and the potential negative impacts of tariffs reinforce the need to analyze costs, evaluate alternatives, and develop plans. For assistance, please contact your Extension Educator and enroll in the OSU Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/). Enrolling in this program will provide you an in-depth analysis of your farm business and allow you to plan for future success.
In our next post on the Ohio Ag Law Blog, we'll explain the tariff power when we kick off our new Principles of Government series.
Tags: tariffs, principles of government, canada, mexico, agricultural economics
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Written by Evin Bachelor, Law Fellow and Sr. Research Associate
We’re back from another successful Farm Science Review! Thank you to everyone who stopped by our booth to ask us questions and pick up law bulletins. We received some great suggestions on new topics affecting agricultural law, so stay tuned as we post more to our Ag Law Blog and Law Library in the near future.
Here’s our gathering of ag law news you may want to know:
ODA reviews meat inspection rules. Ohio’s meat inspection rules are up for review under the state’s Five-Year Review requirement. The Ohio Department of Agriculture (ODA) recently posted the proposed changes to Ohio Administrative Code 901:2-1; 901:2-3; 901:2-6; and 901:2-7 for stakeholder comment on its website. The primary changes to the substance of the rules are meant to bring them into compliance with new federal requirements that took effect earlier this year. ODA also proposes to merge the interstate and intrastate regulations, which could change some rule numbers, but not necessarily their substance. ODA will be accepting comments until Monday, October 1, 2018, which stakeholders may submit to AGReComments@agri.ohio.gov.
OSU explains tariff relief program and impacts. Our good friend and economist Ben Brown and other policy experts in OSU's College of Food, Agricultural, and Environmental Sciences recently published information that explains and analyzes the USDA’s response to the tariffs. View a brief brochure that explains the Market Facilitation Program here. View a longer report on the Market Facilitation Program and the impacts on farm income in Ohio here .
U.S. EPA petitions for new hearing on Chlorpyrifos registrations. A panel of three judges on the U.S. Court of Appeals for the Ninth Circuit in San Francisco ordered the U.S. Environmental Protection Agency (EPA) to cancel chlorpyrifos registrations in August. The judges cited scientific evidence that the chemical insecticide causes developmental defects in children. The U.S. Department of Justice (DOJ), on behalf of the U.S. EPA, filed a petition on Monday, September 24th, requesting an en banc hearing on the decision. If granted, an en banc hearing would involve all the judges who serve on the Ninth Circuit, rather than only the three judges who initially ordered the cancellation of the registrations. The U.S. DOJ argues that the August decision was incorrect and that the court should allow the U.S. EPA to reconsider the insecticide’s registration. For more details, check out The Progressive Farmer’s post here.
License needed to broker oil and gas leases in Ohio. On Tuesday, September 25th, the Ohio Supreme Court decided that oil and gas leases fall within the statutory definition of “real estate.” As such, a person who offers and negotiates an oil and gas lease must have a real estate broker’s license under Ohio Revised Code § 4735.01(A) and § 4735.02(A). Check out Court News Ohio’s webpage for more details.
No "bill of rights" vote for Lake Erie. The group Toledoans for Safe Water sought to put a “Lake Erie Bill of Rights” on the ballot this November as an amendment to the Toledo City Charter. The amendment would have stated that Lake Erie and its watershed “possess the right to exist, flourish, and naturally evolve,” and that the citizens of Toledo have a right to a clean and healthy environment. Enforcement would have been through a mix of revoking corporate licenses and privileges or criminal penalties if violated. Despite having enough signatures, the Lucas County Board of Elections refused to place the issue on the ballot, saying that the amendment contained provisions beyond the City of Toledo’s authority. The dispute made it up to the Ohio Supreme Court, which on Friday, September 21st, decided that Toledoans for Safe Water failed to prove that the Lucas County Board of Elections improperly denied their petition to place the issue on the ballot. The court’s decision is here.
Iowa court makes owner liable for corporate liabilities. An Iowa Court of Appeals decision recently allowed a plaintiff who was suing a biosolids management corporation to “pierce the corporate veil” and collect directly from the sole owner of the corporation. The plaintiff obtained a judgment of $410,067 against the corporation for breach of contract after the corporation stopped performing its work. However, the plaintiff could not collect against the corporation, and an Iowa Court of Appeals decided that the sole owner must pay the judgement. The court said that the owner did not conduct the business or maintain its finances in a manner that demonstrates the existence of a separate legal entity from himself or his other businesses. The owner co-mingled corporate and personal assets and accounts, failed to keep records, and had no bylaws or meeting records. For more on the case, visit the Iowa State University’s Center for Agricultural Law and Taxation website here, or view the case opinion here.
California passes "home cooked food" law. California's governor signed a bill into law last Friday that allows cities and counties to authorize and permit residents to operate “microenterprise home kitchens.” Assembly Bill 626 exempts qualifying businesses from some food service facility regulations to allow residents to sell prepared food from their home, while also recognizing the differences between a home kitchen and a commercial kitchen. To qualify, among other things, the operation can have no more than one full-time non-family employee, the food must be sold direct to the customer, and no more than 60 individual meals can be prepared per week. The bill’s full text and legislative analysis are here.
Barn wedding popularity continues to grow. Fifteen percent of weddings in the United States took place in a barn last year, according to a survey published by the wedding planning site The Knot. In comparison, only two percent of weddings took place in a barn as recently as 2009. The popularity of wedding barns has become a point of contention in many states, including Ohio, because statutory zoning exemptions for agriculture have been used to exempt wedding barns from zoning requirements. We explain Ohio's zoning exemption for "agritourism" in this law bulletin.
Ohio legislation on the move:
- Ohio Senate refers township bill to committee. The Ohio House of Representatives passed House Bill 500 earlier this summer, and the bill has recently been referred to the Ohio Senate’s Local Government, Public Safety, and Veterans Affairs Committee. House Bill 500 proposes to make a number of changes to Ohio’s township statutes, including a change to agricultural zoning regulations. If passed as-is, the bill would allow a township to use zoning to regulate agricultural activities within any platted subdivision. Under current law, townships are limited to a specified list of platted subdivisions that townships may regulate; however, the new law clarifies that the specified list is not intended to be exclusive. For more information on the bill, view the bill analysis produced by the Ohio Legislative Service Commission, or visit the Ohio General Assembly’s website here.
Tags: ag law harvest, meat, food law, oil and gas leases, tariffs, Lake Erie, corporate liability, chloropyrifos, agritourism, townships
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