Tariffs are essentially taxes on imported goods, calculated as a percentage of the sale price that buyers pay to foreign sellers. In the United States, these tariffs are collected by Customs and Border Protection (CBP) agents at multiple ports of entry.
The rates of U.S. tariffs vary significantly depending on the product. For example, passenger cars are typically subject to a 2.5% tariff, while golf shoes face a 6% tariff. However, countries with trade agreements—such as under the U.S.-Mexico-Canada Agreement (USMCA)—enjoy reduced or eliminated tariffs, allowing goods to move more freely.
Economists generally argue that tariffs are an inefficient way for governments to generate revenue or stimulate economic growth. Instead, they often lead to higher consumer prices and trade tensions.
Who Really Pays Tariffs? Debunking a Common Myth
There’s a widespread misconception that tariffs are paid by foreign countries. Former President Donald Trump, a vocal proponent of tariffs, often claimed they would be a financial burden on foreign governments.
However, in reality, it is American importers—usually U.S. businesses—that directly pay these tariffs. They pass these costs on to consumers, resulting in higher prices for everyday goods.
While tariffs do make foreign goods more expensive, they can also have unintended economic consequences. Yang Zhou, an economist from Shanghai’s Fudan University, found that Trump’s tariffs on Chinese imports imposed over three times more economic damage on China compared to the U.S. However, these measures also disrupted global supply chains and led to higher prices for U.S. consumers.
Trump’s Tariff Policies: What Was Promised?
Trump has championed tariffs, claiming they would:
- Create jobs in U.S. manufacturing
- Reduce the federal deficit
- Lower food prices
- Help fund childcare subsidies
During his campaign in Michigan, he even proclaimed, “Tariffs are the greatest thing ever invented.” Throughout his presidency, he imposed tariffs on a wide range of products, from solar panels to steel, and frequently referred to himself as “Tariff Man.”
As he gears up for a potential second term, Trump has suggested even stronger tariff measures could be introduced.
Why Governments Use Tariffs
The main goal of tariffs is to protect domestic industries by making imported goods more expensive. This gives U.S. manufacturers a competitive advantage and discourages unfair trade practices like foreign subsidies and artificially low pricing.
Before the federal income tax was introduced in 1913, tariffs were a primary source of government revenue. Between 1790 and 1860, they accounted for 90% of federal income, according to Douglas Irwin, a trade policy scholar at Dartmouth College.
However, as global trade expanded after World War II, tariffs became less central to government revenue. By FY 2021, the U.S. collected around $80 billion from tariffs and fees, compared to $2.5 trillion from individual income taxes and $1.7 trillion from Social Security and Medicare taxes.
Beyond economic policy, tariffs have also been used as political tools. For example, Trump threatened Mexico with tariffs to pressure them into taking action on Central American migration. He even argued that tariffs could be a weapon to prevent wars, claiming that economic pressure could deter conflicts.
The Economic Backlash: Do Tariffs Really Work?
While tariffs are designed to protect domestic jobs and industries, many economists warn that they often backfire.
Tariffs:
- Increase costs for U.S. businesses that depend on imported materials
- Lead to retaliatory measures from other countries
- Often fail to achieve long-term job growth
For instance, when Trump imposed tariffs on steel and aluminum, the European Union responded by taxing U.S. exports, such as bourbon and motorcycles.
China also hit back, targeting American agricultural products like soybeans and pork—a direct blow to rural voters who were part of Trump’s core base.
A study by economists from MIT, Harvard, the University of Zurich, and the World Bank concluded that Trump’s tariffs did not bring back manufacturing jobs. Instead, they found that employment in heavily tariff-affected regions remained largely unchanged.
In the U.S. steel industry, for example, the number of jobs stayed around 140,000, the same as before the tariffs were introduced—showing that the economic impact failed to match the political promises.
Meanwhile, retaliatory tariffs hurt U.S. farmers, who relied on government aid to offset their losses. Despite these economic challenges, Trump’s trade policies resonated politically, particularly in Midwestern and Southern manufacturing regions, where voters saw tariffs as a symbol of economic protectionism.
The Reality of Tariffs: A Complex Economic Tool
Tariffs may be promoted as a way to protect American workers and industries, but their real-world effects are far more complicated. While they can offer short-term relief for struggling sectors, they often increase consumer prices, disrupt global trade, and provoke retaliation from other nations.
As the debate over tariffs and trade policies continues, the challenge for policymakers will be finding a balanced approach that protects domestic industries without undermining economic growth or escalating global trade tensions.
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