TARIFFS, TARIFFS, TARIFFS

One of the incoming Trump administrations pledges was to impose tariffs on American trading partners who were engaged in unfair trading practices and “ripping us off.” Ostensibly the goal was to create a fairer economic situation for American businesses and consumers. A key question in invoking tariffs is who actually is impacted by tariffs and who bears the cost.

Here is a brief primer on tariffs:

Understanding Tariffs

A tariff is a tax imposed on imported goods with the aim of protecting domestic industries and generating revenue. The importer pays the tariff to U.S. Customs and Border Protection, and often the cost is passed on — fully or partially — to consumers in the form of higher prices. As a result, goods from tariffed countries may become more expensive for buyers.

Tariffs are sometimes confused with value-added taxes, but they are not the same. VATs are generally imposed on both domestically produced and imported goods and services at each stage of production and distribution. Businesses can typically deduct the VAT they have paid on their purchases (input VAT) from the VAT they collect on their sales (output VAT), ensuring that the tax burden ultimately falls on the final consumer.

Types of tariffs

Tariffs vary based on the goods being taxed. For example, imported steel and aluminum, regardless of country of origin, might have a 50% tariff, while all goods from Canada and Mexico might be subject to a 25% tariff. Additionally, agricultural tariffs are treated differently from tariffs on manufactured goods.

Tariffs on raw materials may lead to higher prices on finished products. For example, if auto manufacturers pay more for steel and aluminum, they may set higher prices for cars. Farmers sometimes benefit from protective tariffs, trade restrictions and export subsidies. However, they can also face retaliatory tariffs from other countries. For instance, in 2018, high retaliatory tariffs on U.S. agricultural exports led the federal government to authorize $61 billion in relief payments to support farmers and ranchers.

Effects of tariffs on trade

Most economists agree that tariffs have a place in any overall economic plan, particularly if they are strategically targeted and narrowly focused. Examples of such focus include:

· Protecting domestic industries by making foreign goods less competitive.

· Addressing trade imbalances with specific countries.

· Responding to unfair trade practices.

However, broad tariffs can lead to a reduction in exports for these reasons:

· Higher costs for raw materials can reduce manufacturing output.

· Trading partners may impose retaliatory tariffs, increasing the cost of U.S. exports.

· Tariffs may influence currency values, making U.S. goods more expensive for foreign buyers.

· Domestic manufacturers may shift focus to selling within the U.S., potentially oversupplying the market and driving prices down.

Who pays for tariffs?

Although tariffs are paid by importers, the costs are often passed to consumers. Because lower- and middle-income households spend a larger share of their income on goods, they may be more affected by any rising prices. At the same time, some companies may benefit from tariffs in the short term, as reduced competition can allow them to charge higher prices.

Tariffs are one component of trade policy, but they are typically used alongside other economic tools, such as fiscal and monetary policies. Their impact depends on how they are structured and the broader economic environment in which they are applied.
MyTaxPilot, “Understanding Tariffs.” newsletters@mail.homemail-two.com 3/19/2025

So, there are legitimate uses of tariffs for specific, limited purposes as part of a comprehensive national economic policy. However, in this case tariffs are being weaponized for political reasons. There are obvious and damaging consequences of this strategy:

Politically motivated tariffs alienate allies and trading partners as they constitute political bullying. They start trade wars in which everyone loses.

American consumers, and not targeted nations, ultimately pay for tariffs as companies impacted pass on costs to consumers. This creates economic inflation.

American businesses lose market share as they face reciprocal tariffs. Recovering lost markets is problematic even if tariffs are rescinded.

Implementing tariffs and then selectively granting exemptions for political purposes, all by executive order, further exaggerates executive authority and invites corruption.

Unpredictable tariff policy destabilizes financial markets and increases the probability of recession or depression.

Economist Robert Reich has offered a concrete example:

Say there’s a 60% tariff on Chinese imports. When Walmart imports Mr. Coffee machines from China (which is where they’re made) who pays the tariff?

Not China. Walmart pays the United States government.

For example, if Walmart buys a coffee machine for $20 dollars, the 60% tariff means they’ll pay an extra $12 dollars in taxes, bringing their total cost to $32 dollars per machine. And who ultimately pays that extra $12? Hint: it’s not going to be Walmart. In fact, Walmart’s CFO has already said they expect to raise prices to pay for Trump’s tariffs.

In his first term, Trump levied tariffs that led to higher prices on thousands of products, costing American families close to $80 billion dollars. China’s retaliatory tariffs resulted in a $27 billion dollar loss in agricultural exports, and American farm bankruptcies shot up 20 percent.

American manufacturing also shrank, as the cost of raw materials increased and demand for exports slumped. One study estimates Trump’s trade war cost nearly 300,000 American jobs.
Robert Reich, “American consumers will pay for Trump’s tariffs” 2/18/2025

Prior to the 2024 election, presidential candidate Donald Trump promised to immediately bring down the cost of living for ordinary American families and promote the prosperity of American businesses. Capricious, politically motivated tariffs will almost certainly have the opposite effect. This should not be a Republican or Democratic issue; it is a wellbeing of American families and businesses issue. It is a preservation of democracy issue. Everyone should support policies that advance that goal.