Certain misunderstandings persist in discussions about economic policy, despite clear evidence to the contrary. Tariffs and their supposed benefits to domestic economies are one example of a common misconception.
Tariffs have long been a popular economic policy tool, frequently cited as a means of protecting domestic industries and strengthening national economies. Political leaders have been especially vocal about their benefits, claiming that they force foreign countries to pay and bring manufacturing jobs back home.
The reality, however, reveals a more complex economic system.
Regardless of their political appeal, tariffs are effectively a tax on consumers and businesses in the country that imposes them (despite what some claim). They have a cascading effect of higher prices, fewer product options, and economic inefficiencies that usually outweigh any purported benefits (Hufbauer & Lowry, 2012).
Tariffs are simply taxes on imported goods. When a product crosses a border, the government charges a fee, raising the price of the imported item. There are two main types: ad valorem tariffs (a percentage of the product’s value) and specific tariffs (a fixed charge per unit). Whatever the form, the economic impact is predictable.
One of the most common misconceptions about tariffs is that foreign exporters pay them. The claim that other countries have been “paying billions” in tariffs is fundamentally incorrect. Tariffs are actually paid by importing businesses within the country that imposes them. The revenue goes to the government, but businesses and consumers bear the cost in the importing country (Santacreu et al., 2023).
Consider a company that imports electronics from overseas. When tariffs are imposed, the company pays the tariff when the goods enter the country, then passes on the increased cost to customers by raising prices. Domestic consumers end up paying more for the same products. Foreign companies may adjust their prices slightly to remain competitive, but most of the burden is borne by the importing country’s businesses and consumers.
Tariffs raise prices throughout the economy by increasing the cost of imports. Businesses that rely on foreign raw materials must pay more for production, raising the finished goods’ price. This can have a number of negative effects, including higher input costs for businesses, higher consumer prices, and fewer consumer options as some products become unprofitable to import (Bureau of Labor Statistics, 2020).
One of the clearest real-world examples of this occurred in 2018 when tariffs on washing machines led to higher costs for American households. The goal was to protect domestic manufacturers, but the result was that consumers paid approximately $86 more per unit. The additional cost to households was estimated at $1.5 billion, but the policy only created a small number of new jobs, each worth hundreds of thousands of dollars (Flaaen et al., 2020). The tariffs generated only $82 million in revenue for the U.S. government, highlighting the disproportionate burden on consumers compared to the benefits for the government or domestic manufacturers.
In theory, tariffs benefit domestic industries by reducing competition from lower-cost imports. In practice, the benefits are frequently overstated. While some sectors may benefit in the short term, others face rising costs and declining competitiveness. Economic studies have repeatedly shown that tariffs destroy more jobs than they create, especially in industries that rely on global supply chains (Hufbauer & Lowry, 2012).
Tariffs are rarely seen in isolation. When one country imposes tariffs, others usually respond in kind, resulting in trade wars. The 2018-2019 trade tensions are a clear example. When tariffs were imposed on Chinese goods, China responded by levying tariffs on American agricultural products. American farmers, who had relied on China as a key market, were suddenly unable to compete. The situation became so dire that the government had to implement bailout programs to compensate for the losses (Chyzh & Urbatsch, 2021).
Tariff escalations, rather than winning trade wars, tend to reduce overall economic efficiency, disrupt supply chains, and create uncertainty, making businesses reluctant to invest.
If tariffs cause more problems than they solve, what are the alternatives? Economic research generally recommends investing in competitiveness through education, infrastructure, and technology; negotiating trade agreements that open markets rather than close them; and assisting workers in transition through retraining programs rather than supporting declining industries through protectionist measures (Irwin, 2017).
Despite their long-standing political appeal, tariffs are primarily a tax on domestic consumers and businesses. They raise prices, distort markets, and frequently cause net job losses rather than gains. The notion that tariffs force foreign countries to “pay” is a fundamental misunderstanding of how international trade works.
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Nikos Tzivanakis 