Tariffs

A tariff is a tax on the importation of a certain good. Tariffs are imposed for various reasons, the most common being protectionism. The reasoning claims that the tariff will create a certain barrier to the importation of the good, giving a competitive edge to faltering domestic industry.

However, this type of policy actually damages the national economy as a whole. Who ends up paying the tariff tax is not importers or foreign producers, but American customers. Tariffs work like sales tax at the store. The store does not continue to sell goods at their list price and absorb the government sales tax into their net profits. They charge you their list price and add the amount of the tax, helpfully indicating on your receipt how much you just paid the government. Tariffs are like a hidden sales tax. Vendors of the good simply raise its price to reflect the damage of the tax. They lose nothing, while consumers pay more.

One might ask, “doesn’t this enable domestic producers to sell their product for less?” Certainly it does. But one of the fundamental laws of the market is that price and demand tend to meet at an equilibrium point. If foreign goods become more expensive, there will be more demand for domestic goods, and thus the price of domestic goods will rise. Furthermore, vendors of domestic goods–Ford automobiles, for instance–will observe that imported goods–comparable Honda automobiles, for instance–are going for so much, and will raise their own prices to be the same or slightly less than the imported good. Meanwhile, importers and foreign producers simply scale back their operations in response to falling demand.

The bottom line is that the only person this kind of policy hurts is the American consumer, who finds the cost of the good more prohibitive. While it might be argued that certain small sections of the workforce, such as large-scale farmers and industrial workers, can benefit from protectionist policies, every member of the U.S. population, and everyone who participates in our domestic economy, is hurt as a result.

The reason these kinds of trade restrictions are popular at all is that these small demographics hire lobbyists who wage propaganda campaigns, support compliant politicians, and energetically represent their clientele to members of Congress, urging policies not actually in the best interest of most Americans.