Tackling tariffs

One presidential candidate wants higher tariffs, 10% across the board and 60% on Chinese imports. Many Americans say they support such tariffs.

This is mostly pandering to certain groups of workers, but is it a good idea for most Americans and the economy?

Have you ever heard the phrase “shooting yourself in the foot?”

The thing is, if we can use tariffs to make it harder for other countries to sell goods to us, the other countries can do the same.

Tariffs can have a number of consequences. Here’s a breakdown of some of the main effects:

Increased Prices for Consumers: One of the most common consequences of tariffs is that they raise the prices of imported goods. This is because the tariff acts as a tax on imports, making them more expensive for businesses to bring into the country. Businesses will often pass on this increased cost to consumers in the form of higher prices. Check where the clothes you buy are made or appliances or parts for your car or furniture. Can you say inflation?

Potential Job Gains in Protected Industries: Tariffs can make domestically produced goods cheaper relative to imported goods. This can lead to increased demand for domestic products and potentially create jobs in those industries. But what happens when there is an increased demand for a product and limited competition?

Reduced Efficiency and Innovation: Since tariffs can shield domestic producers from foreign competition, they may be less incentivized to innovate and improve their efficiency. This can lead to higher prices and lower quality goods for consumers in the long run.

Trade Wars and Retaliation: When one country imposes tariffs, other countries may retaliate with their own tariffs. This can lead to a trade war, which can harm both countries’ economies.

Higher Unemployment: While tariffs may create jobs in some sectors, they can also lead to job losses in others. This is because tariffs can raise prices for businesses, which can lead to reduced consumer spending and investment. This can ultimately lead to businesses laying off workers.

Impact on Government Revenue: Tariffs can generate revenue for the government. However, the revenue generated from tariffs is often outweighed by the negative economic consequences.

The overall impact of tariffs on an economy is complex and depends on a variety of factors, such as the specific goods being taxed, the size of the tariffs, and how other countries respond.

However, most economists agree that tariffs tend to have a negative impact on economic growth and welfare

What happened in the past? Here is one view. I urge you to read the full article.

Trump’s first trade war was a failure. Though intended to boost U.S. manufacturing and reduce the trade imbalance, (unsurprisingly) neither occurred. Americans almost exclusively paid the tariffs that the U.S. imposed on nearly $380 billion worth of imports. Businesses faced higher costs, making it harder to compete internationally. Foreign governments retaliated with tariffs on U.S. exports, and China halted its purchases of agricultural products altogether. Lobbying, along with political favoritism, mushroomed.

One Federal Reserve paper concluded, “the impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and higher costs in downstream industries.” In other words, the tariffs didn’t create a net benefit because protection for some was outweighed by costs for others.

The Tax Foundation