Business

Tariffs explainer: what are they, how do they work, are they a tax

Published

2 hours ago

December 12, 2025

The U.S. Supreme Court is currently reviewing a case to determine whether President Donald Trump’s global tariffs are legal.

Until recently, tariffs rarely made headlines. Yet today, they play a major role in U.S. economic policy, affecting the prices of everything from groceries to autos to holiday gifts, as well as the outlook for unemployment, inflation and even recession.

I’m an economist who studies trade policy, and I’ve found that many people have questions about tariffs. This primer explains what they are, what effects they have, and why governments impose them.

What are tariffs, and who pays them?

Tariffs are taxes on imports of goods, usually for purposes of protecting particular domestic industries from import competition. When an American business imports goods, U.S. Customs and Border Protection sends it a tariff bill that the company must pay before the merchandise can enter the country.

Because tariffs raise costs for U.S. importers, those companies usually pass the expense on to their customers by raising prices. Sometimes, importers choose to absorb part of the tariff’s cost so consumers don’t switch to more affordable competing products. However, firms with low profit margins may risk going out of business if they do that for very long. In general, the longer tariffs are in place, the more likely companies are to pass the costs on to customers.

Importers can also ask foreign suppliers to absorb some of the tariff cost by lowering their export price. But exporters don’t have an incentive to do that if they can sell to other countries at a higher price.

Studies of Trump’s 2025 tariffs suggest that U.S. consumers and importers are already paying the price, with little evidence that foreign suppliers have borne any of the burden. After six months of the tariffs, importers are absorbing as much as 80% of the cost, which suggests that they believe the tariffs will be temporary. If the Supreme Court allows the Trump tariffs to continue, the burden on consumers will likely increase.

While tariffs apply only to imports, they tend to indirectly boost the prices of domestically produced goods, too. That’s because tariffs reduce demand for imports, which in turn increases the demand for substitutes. This allows domestic producers to raise their prices as well.

A brief history of tariffs

The U.S. Constitution assigns all tariff- and tax-making power to Congress. Early in U.S. history, tariffs were used to finance the federal government. Especially after the Civil War, when U.S. manufacturing was growing rapidly, tariffs were used to shield U.S. industries from foreign competition.

The introduction of the individual income tax in 1913 displaced tariffs as the main source of U.S. tax revenue. The last major U.S. tariff law was the Smoot-Hawley Tariff Act of 1930, which established an average tariff rate of 20% on all imports by 1933.

Those tariffs sparked foreign retaliation and a global trade war during the Great Depression. After World War II, the U.S. led the formation of the General Agreement on Tariffs and Trade, or GATT, which promoted tariff reduction policies as the key to economic stability and growth. As a result, global average tariff rates dropped from around 40% in 1947 to 3.5% in 2024. The U.S. average tariff rate fell to 2.5% that year, while about 60% of all U.S. imports entered duty-free.

While Congress is officially responsible for tariffs, it can delegate emergency tariff power to the president for quick action as long as constitutional boundaries are followed. The current Supreme Court case involves Trump’s use of the International Emergency Economic Powers Act, or IEEPA, to unilaterally change all U.S. general tariff rates and duration, country by country, by executive order. The controversy stems from the claim that Trump has overstepped his constitutional authority granted by that act, which does not mention tariffs or specifically authorize the president to impose them.

The pros and cons of tariffs

In my view, though, the bigger question is whether tariffs are good or bad policy. The disastrous experience of the tariff war during the Great Depression led to a broad global consensus favoring freer trade and lower tariffs. Research in economics and political science tends to back up this view, although tariffs have never disappeared as a policy tool, particularly for developing countries with limited sources of tax revenue and the desire to protect their fledgling industries from imports.

Yet Trump has resurrected tariffs not only as a protectionist device, but also as a source of government revenue for the world’s largest economy. In fact, Trump insists that tariffs can replace individual income taxes, a view contested by most economists.

Most of Trump’s tariffs have a protectionist purpose: to favor domestic industries by raising import prices and shifting demand to domestically produced goods. The aim is to increase domestic output and employment in tariff-protected industries, whose success is presumably more valuable to the economy than the open market allows. The success of this approach depends on labor, capital and long-term investment flowing into protected sectors in ways that improve their efficiency, growth and employment.

Critics argue that tariffs come with trade-offs: Favoring one set of industries necessarily disfavors others, and it raises prices for consumers. Manipulating prices and demand results in market inefficiency, as the U.S. economy produces more goods that are less efficiently made and fewer that are more efficiently made. In addition, U.S. tariffs have already resulted in foreign retaliatory trade actions, damaging U.S. exporters.

Trump’s tariffs also carry an uncertainty cost because he is constantly threatening, changing, canceling and reinstating them. Companies and financiers tend to invest in protected industries only if tariff levels are predictable. But Trump’s negotiating strategy has involved numerous reversals and new threats, making it difficult for investors to calculate the value of those commitments. One study estimates that such uncertainty has actually reduced U.S. investment by 4.4% in 2025.

A major, if underappreciated, cost of Trump’s tariffs is that they have violated U.S. global trade agreements and GATT rules on nondiscrimination and tariff-binding. This has made the U.S. a less reliable trading partner. The U.S. had previously championed this system, which brought stability and cooperation to global trade relations. Now that the U.S. is conducting trade policy through unilateral tariff hikes and antagonistic rhetoric, its trading partners are already beginning to look for new, more stable and growing trade relationships.

So what’s next? Trump has vowed to use other emergency tariff measures if the Supreme Court strikes down his IEEPA tariffs. So as long as Congress is unwilling to step in, it’s likely that an aggressive U.S. tariff regime will continue, regardless of the court’s judgment. That means public awareness of tariffs ⁠– and of who pays them and what they change ⁠– will remain crucial for understanding the direction of the U.S. economy.

Kent Jones, Professor Emeritus, Economics, Babson College

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Arkansas becomes first state to cut ties with PBS, saying $2.5 million membership dues ‘not feasible’

Published

21 minutes ago

December 12, 2025

Jace Porter

The commission that oversees public television in Arkansas voted Thursday to sever ties with PBS, making it the first state to end its contract with the broadcast giant that provides popular television programs such as “Sesame Street,” “Nova” and “Antiques Roadshow.”

The eight-member Arkansas Educational Television Commission, made up entirely of appointees of the governor, announced in a news release Thursday that it planned to disaffiliate from PBS effective July 1, citing annual membership dues of about $2.5 million it described as “not feasible.” The release also cited the unexpected loss of about that same amount of federal funding from the Corporation for Public Broadcasting, which was targeted for closure earlier this year and defunded by Congress.

PBS Arkansas is rebranding itself as Arkansas TV and will provide more local content, the agency’s Executive Director and CEO Carlton Wing said in a statement. Wing, a former Republican state representative, took the helm of the agency in September.

“Public television in Arkansas is not going away,” Wing said. “In fact, we invite you to join our vision for an increased focus on local programming, continuing to safeguard Arkansans in times of emergency and supporting our K-12 educators and students.”

PBS confirmed in an email Thursday that Arkansas is the first state to definitively sever ties with the broadcaster. Alabama considered similar action last month, but opted to continue paying its contract with PBS after public backlash from viewers and donors.

“The commission’s decision to drop PBS membership is a blow to Arkansans who will lose free, over the air access to quality PBS programming they know and love,” a PBS spokesperson wrote in an email to The Associated Press.

The demise of the Corporation for Public Broadcasting, is a direct result of President Donald Trump’s targeting of public media, which he has repeatedly said is spreading political and cultural views antithetical to those the United States should be espousing. The closure is expected to have a profound impact on the journalistic and cultural landscape — in particular, public radio and TV stations in small communities nationwide.

Arkansas House Democratic Leader Rep. Andrew Collins called the demise of PBS in Arkansas sad. “It’s certainly a loss for Arkansas families who value the programming of PBS,” he said.

CPB helps fund both PBS and NPR, but most of its funding is distributed to more than 1,500 local public radio and television stations around the country.

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Business

Disney plus OpenAI: What could go wrong?

Published

52 minutes ago

December 12, 2025

Jace Porter

Hello, Alexei Oreskovic pitching in for Allie today. Well folks, this week had it all: A new OpenAI model, reports of an upcoming SpaceX IPO, and even a Waymo baby! And to top it all off, OpenAI and Disney announced a surprise partnership that will include a $1 billion investment in OpenAI and enable OpenAI users to create AI-generated videos with Mickey Mouse and hundreds of other Disney characters.

The 3-year deal is a huge win for OpenAI (all the more so given that Disney simultaneously sent a cease-and-desist letter to Google, accusing the internet giant and OpenAI arch-rival of infringing its IP via its AI systems on a “massive scale”). The question is: Why is the Mouse House rolling out the red carpet for the ChatGPT maker?

You don’t need a lot of imagination to guess the sordid scenarios that await Disney’s family-friendly cast of characters now that the tortured souls of the internet will have carte blanche to feed them into the AI nightmare machine. There will be safeguards in place to prevent Mickey and friends from doing drugs, fornicating, and engaging in other unseemly or illegal behavior, a source told the Wall Street Journal. And I’m sure absolutely no one will figure out how to bypass those guardrails.

Entertainment businesses need to stay ahead of the trends and make sure they’re relevant to the next generation of consumers, of course. So hooking up with OpenAI is an obvious way for a company to stay connected with the kids. But if there’s any company that would seem in less immediate danger of losing the kids, it’s the company with The Lion King, The Little Mermaid, Donald Duck, and Iron Man.

This will certainly be an interesting adventure to watch. And perhaps Disney’s deal with OpenAI will prove prescient and astute. I just hope Donald can hold his liquor.

See you Monday,

Alexei Oreskovic
X:@lexnfx
Email:alexei.oreskovic@fortune.com
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Venture Deals

– Harness, a San Francisco-based AI-powered platform designed to ship code faster, raised $240 million in Series E funding. GoldmanSachs led the round and was joined by IVP, MenloVentures, and UnusualVentures.

– Port, a Middletown, Del.-based AI agent designed to handle some software developer tasks, raised $100 million in Series C funding. General Atlantic led the round and was joined by Accel, BessemerVenturePartners, and Team8.

– Serval, a San Francisco-based developer of AI agents designed for IT processes, raised $75 million in Series B funding. Sequoia led the round and was joined by Redpoint, Meritech, FirstRound, and others.

– Medra, a San Francisco-based AI platform designed to accelerate data generation for scientists, raised $52 million in Series A funding. HunanCapital led the round and was joined by LuxCapital, Neo, NFDG, and others.

– RelationalAI, a San Francisco-based enterprise decision intelligence platform, raised $22.5 million in funding from SnowflakeVentures and AT&TVentures.

– HavenEnergy, a Los Angeles, Calif.-based solar and home battery tech company, raised $15 million in Series B funding. GiantVentures led the round and was joined by CaliforniaInfrastructureBank, CarnriteVentures, ChaacVentures, ComcastVentures, and LererHippeau.

– Neosapience, the San Francisco-based developer of the Typecast platform for creating voice and video content designed to have emotional intelligence, raised $11.5 million in Series C funding. Intervest led the round and was joined by HBInvestment, K2Investment, and BokwangInvestment.

– Skydo, a Bangalore, India-based payments platform for global exporters, raised $10 million in Series A funding. SusquehannaAsiaVentureCapital and ElevationCapital.

– Subsense, a Palo Alto, Calif.-based developer of non-surgically invasive, nanoparticle-based brain-computer interfaces, raised $10 million in funding from GoldenFalconCapital.

– Kilo, a San Francisco-based open source coding agent, raised $8 million in seed funding. CotaCapital led the round and was joined by Breakers, GeneralCatalyst, QuietCapital, and TokyoBlack.

– OnMe, a San Francisco-based digital gifting platform, raised $6 million in seed funding. NFX led the round and was joined by existing investors LererHippeau and Focal.

– Cyphlens, a New York City-based enterprise security platform, raised $3.8 million in seed funding from SalesforceVentures, MotivateVentures, DCG, ex/ante, and CambrianVentures.

– Conveyd, a London, U.K.-based AI conveyancing platform, raised $3.3 million in seed funding. Eka Ventures led the round and was joined by PortfolioVentures and existing investor FoundersFactory and angel investors.

– Realm.Security, a Boston, Mass.-based security data pipeline platform, raised $2 million in funding from PresidioVentures.

Private Equity

– LongRidgeEquityPartners acquired a majority stake in OnCorpsAI, a Boston, Mass.-based agentic AI platform designed for fund operations, for $55 million.

– Aretum, a portfolio company of RenovusCapitalPartners, acquired VeteransEngineering, a Rockville, M.D.-based IT modernization, cybersecurity, and cloud architecture company for mission-critical government programs. Financial terms were not disclosed.

– Rentsync, backed by SilversmithCapitalPartners, acquired Spacelist, a Vancouver, Canada-based real estate listing marketplace. Financial terms were not disclosed.

Exits

– PerimeterSolutions agreed to acquire MedicalManufacturingTechnologies, a Charlotte, N.C.-based provider of medical manufacturing solutions, from ArclineInvestmentManagement for $685 million.

– ExperiGreenLawnCare, backed by WindPointPartners, acquired TurfMastersBrand, a Roswell, Ga.-based lawn care company, from CenterOakPartners. Financial terms were not disclosed.

Funds + Funds of Funds

– SwishVentures, a Tel Aviv, Israel-based venture capital firm, raised $100 million for a new fund focused on companies in cybersecurity, infrastructure, and AI.

People

– CoreInnovationCapital, a Los Angeles, Calif.-based venture capital firm, hired Michael J. Hsu as venture partner. He most recently served as Comptroller of the Currency.

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Business

Retail investors drive stocks to a pre-Christmas all-time high—and Wall Street eyes a moment to sell

Published

1 hour ago

December 12, 2025

Jace Porter

S&P 500 futures ticked downward 0.22% this morning, an indicator that some traders decided overnight to lock in their gains from yesterday’s close, when the index reached a new all-time high of 6,901. The peak was entirely predictable, given that U.S. Federal Reserve chairman Jerome Powell delivered a new dose of liquidity, as expected, via Wednesday’s 0.25% interest rate cut.

Nasdaq 100 futures were down 0.51% this morning, premarket, as traders picked winners and losers in the tech sector. Oracle lost another 1% overnight. It’s down more than 9% over the last five sessions after reporting revenue below expectations and capital expenditure above expectations. Alphabet (Google) by contrast was up 0.26% in overnight trading.

The bigger picture is the fact that the S&P 500 has now risen 17.33% year to date.

The trigger for that came from Powell telegraphing 175 basis points of cuts since last year. But the markets have also been driven by retail investors—individuals, as opposed to financial institutions—buying into exchange-traded funds and individual tech stocks, according to Arun Jain and his colleagues at JPMorgan.

In the week up to December 10, retail investors ploughed $7.8 billion into stocks, above the $6.3 billion weekly average. “Retail investors continued to favor ETFs (+$6.3B) over Single Stocks (+$1.5B),” they told clients in a note seen by Fortune.

“2025 is set to be a record year for retail traders in terms of flows (tracking at ~1.9x the 5y avg), 53% above the levels seen last year and 14% above the previous peak during the retail mania of 2021,” they said.

Retail investors probably did very well in the markets this year because they tended to buy the dips—there was a 38% gain between the market’s April low and yesterday—they bought ETFs, and they bought gold (up 65% year to date), the JPM team said.

Retail trading volume has doubled since 2010, according to the Financial Times, and individual investors are now more active than mutual funds and hedge funds.

Retail investors are so enthusiastic for risk assets that some people on Wall Street are starting to worry about it. The Bank of International Settlements—a sort of bank for central banks—published a paper recently arguing that retail traders now represent the dumb money in the market.

“Retail investors continued to pour money into U.S. equity funds, even as institutional investors gradually withdrew,” the bank wrote. “Appetite for precious metals may underscore market participants seeking at least some safe asset exposure in the event that things turn sour. But part of the surge can also be traced to investors trying to take advantage of the momentum in search of price appreciation, consistent with elevated risk-taking.”

Michael Hartnett and his colleagues at Bank of America see it as as sell-signal. Their “Bull & Bear Indicator”—a gauge that measures “investor fear and greed” from technical market data such as fund flows—now stands at 7.8, just below the “extreme bullishness” level that suggests it might be a good time to cash out:

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

S&P 500 futures were down 0.22% this morning. The last session closed up 0.21% to hit a new record high of 6,901.
STOXX Europe 600 was up 0.37% in early trading.
The U.K.’s FTSE 100 was up 0.38% in early trading.
Japan’s Nikkei 225 was up 1.37%.
China’s CSI 300 was up 0.63%.
The South Korea KOSPI was up 1.38%.
India’s NIFTY 50 was up 0.51%.
Bitcoin went to $92K.

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