Tariffs are making headlines right now, partially due to President Trump’s tariffs on imports from Canada, Mexico, and China.

But what exactly is a tariff? And what are the pros and cons of using tariffs as an instrument of fiscal policy? Kimberly Clausing, tax law expert and the Eric M. Zolt Chair in Tax Law and Policy at UCLA Law is here to help make sense of it all.

We sat down with Clausing to ask a few questions. Here is what she had to say.

Tariffs seem to be a hot topic these days – why?

Tariffs are in the news a lot these days, in part because President Trump is considering using them far more broadly than they've been used in the past. The Trump Administration is suggesting tariffs as a fiscal policy tool, as a way for the government to raise revenue to pay for things like tax cuts and other fiscal priorities. So, that makes it especially important to understand what tariffs do.

And, what exactly do tariffs do?

Well, let’s be clear, tariffs are a tax. They're a consumption tax and they fall disproportionately on poor and middle-income people because poor and middle-income people spend more of their income each month in general (since they don’t save as much as well-off households), so they also spend more of their income on imported goods. Tariffs make imported goods more expensive, but they also make those goods that compete with imports more expensive. For example, if French wine becomes more expensive, California vintners can charge more too.

What are some misconceptions about tariffs and how they work?

A less appreciated fact about tariffs is that they make it harder to produce in the United States. You might think tariffs would help production of the goods that are tariffed. So, if you put a tariff on steel, it helps steel production. But it also hurts the production of other goods that use steel as an input, goods like cutlery or cars. As it turns out, the majority of our imports are intermediate goods. So, when we make those goods more expensive, we also make producing in the United States more expensive. In addition, retaliation from our trading partners will harm exporters. Beyond that, tariffs harm our international relations with trading partners. In the end, tariffs are a very difficult tool to use well, and their broad use today is misguided.