EYDER PERALTA, HOST:
This week, President Trump's new tariffs - 25% - go into effect for all imported cars and auto parts. And in a few days, he's expected to announce more tariffs - what he's calling reciprocal tariffs - on goods from the world over. So who's paying for this? If you ask the White House, it's foreign countries. Here's how Trump put it on Inauguration Day.
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PRESIDENT DONALD TRUMP: Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.
PERALTA: But it's not really foreign countries picking up the tab. NPR's White House correspondent Danielle Kurtzleben is here to walk us through how it works. Hey there, Danielle.
DANIELLE KURTZLEBEN, BYLINE: Hey, Eyder.
PERALTA: So Trump says this all the time, that tariffs are paid by foreign countries. Explain what actually happens when an import comes into the U.S.
KURTZLEBEN: Sure, so let's use a concrete example. Let's say an American airplane manufacturer is importing aluminum from Canada. So that aluminum arrives at a U.S. port, and there, the manufacturer or a broker representing them, pays that 25% tariff to U.S. Customs and Border Protection. So in other words, a company in America is handing that money over. It's not the Canadian company selling the goods, and it's certainly not Canada.
PERALTA: OK, so the money isn't being paid directly by foreign countries. So then there's a question of who actually ultimately pays the cost.
KURTZLEBEN: Right, and White House officials argue that foreign companies end up eating the cost of tariffs by lowering their prices. I recently asked Kevin Hassett - he's one of the president's top economic advisers - why that would be true. He told me that he expects foreign companies will lower their prices to compensate for the tariffs. That would mean that the foreign companies profits would go down, but prices wouldn't change for American importers or consumers.
PERALTA: Okay, so what does the evidence show? I mean, do foreign countries lower their prices in response to tariffs?
KURTZLEBEN: No, at least not based on evidence from Trump's first term. I called an economist at Columbia University, David Weinstein, who studied Trump's first-term tariffs on China.
DAVID WEINSTEIN: For the most part, the pass through, as far as we can measure it, was close to 100%. What that means is that American importers paid for the cost of the tariffs on virtually all Chinese products coming into the United States.
KURTZLEBEN: And other studies have also shown that American businesses and consumers largely paid Trump's first-term tariffs. Now, the White House has stood by its claims that foreign companies will eat the cost of these tariffs. But I've asked the White House for data backing that up, and I haven't received any.
PERALTA: Has Trump addressed this question of who's actually on the hook for tariffs?
KURTZLEBEN: Well, he's been asked about it. At a press conference last month, a reporter asked him directly why he believes foreign governments are paying tariffs. Trump did not answer directly, but he argued the economy was fine in his first term when he imposed the tariffs.
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TRUMP: It's a myth that's put out there by foreign countries that really don't like paying tariffs and especially to even up.
KURTZLEBEN: And again, I've asked the White House for a more direct answer on this, and I haven't received a response.
PERALTA: So speaking of other countries, I mean, tariffs don't hurt other countries at all?
KURTZLEBEN: Well, they certainly can. There's evidence showing that Chinese manufacturing declined after Trump's first-term tariffs on them, and you can see Canada right now loudly protesting the tariffs Trump is putting in place on autos, on steel and aluminum and other goods. In fact, ads have popped up in multiple U.S. states recently - ads funded by the Canadian government - telling Americans that tariffs are a tax. So Canada clearly doesn't like this policy.
The White House, meanwhile, is arguing that Trump's tariffs are going to boost U.S. manufacturing, bringing factories back to the U.S. Now, it is not clear that that's going to work, but even if it did, the point here is that tariffs involve trade-offs. Higher prices are just one of the economic problems that tariffs can cause, and there are also noneconomic trade-offs like worse relationships with foreign countries.
PERALTA: NPR's Danielle Kurtzleben, thank you.
KURTZLEBEN: Thank you, Eyder.
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