What Are Tariffs?

A tariff is a type of tax levied by a country on an imported good at the border. Historically, tariffs have been us🌱ed by governments to collect additional revenue. But they are also a way for governments to try to♚ protect domestic producers.

As a protectionist tool, a tariff increases the prices of imports. Due to that, consumers may choose to buy other, relatively less expensive domestic goods instead.

Understanding Tariffs

In today’s global economy, many products made in a home country consist of parts obtained from other countries. Or, these products might have been assembled overseas. As a result, tariffs can affect the prices of products made in the home country as well as those imported f💜rom other countries.

Many economists argue that tariffs create market distortions that can harm domestic consumers over time. They can also lead to a 澳洲幸运5开奖号码历史查询:trade war if trading partners impose tit-for-tat tariffs.

The process of setting tariff rates involves a combination of economic, political, and strategic issues. Governments engꦺage in complex negotiations and considerations of reciprocity with trading partners𒁃.

Tariffs also🍌 can be used as a political tool to manage r💟elationships.

How a Tariff Works

Tariffs are used to restrict imports by increasing the price of goods and services purchased from another countr🐎y. This makes them less attractive to domestic consumers. There are two types of tar𝔉iffs:

• A specific tariff is levied as a fixed fee based on the type of item, such as a $1,000 tariff on a car.
• An 澳洲幸运5开奖号码历史查询:ad valorem tariff is levied based on the item’s value, such as 10% of the value of the vehicle.

Reasons for Tariffs

Governments may impose tariffs to rais💎e revenue or protect domestic industries—especially nasce🌠nt ones—from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically-produced alternatives more attractive.

Governments that use tariffs to benefit particular industries often do so to protect companies and jobs. Tariffs can also be used as an extension of foreign policy: Imposing tariffs on a trading partner’s main exports is a way to exert econo🔜mic leverage.

Side Effects

Tariffs can have unintended side effects:

• They can make domestic industries less efficient and innovative by reducing competition.
• They can hurt domestic consumers since a lack of competition tends to push up prices.
• They can also generate tensions by favoring certain industries, or geographic regions, over others.
• When used to pressure a rival country, a relationship can devolve into an unproductive cycle of retaliation, sometimes known as a trade war.

For example, tariffs designed to help ꦜmanufacturers in cities may hurt consumers i𓆉n rural areas who do not benefit from the policy and are likely to pay more for manufactured goods.

Who Is Most Impacted by Tariffs?

Tariffs can affect consumers, businesses, and countries' economic development:

1. Tariffs often have a regressive impact, disproportionately affecting lower-income consumers. Since tariffs lead to higher prices for imported goods, individuals with limited financial means, who typically spend a higher percentage of their income on basic necessities, may bear a heavier burden than others.

2. Small businesses, particularly those relying on imported materials subject to tariffs, face significant challenges, such as the consequence of increased costs. Small businesses have different constraints compared to larger companies; these constraints aren't just how much money they make but how much influence they can have on economic policies.

3. Higher tariffs can impede developing countries' integration into the global economy, limiting their access to international markets, and potentially hindering economic development. These countries, with fewer resources, may not have the ability to purchase certain goods for consumption.

U.S. Tariffs and Free Trade

In today’s market-leaning global economy, tariffs have earned something of a bad reputation. Many economists argue that they are harmful for𝄹 the ec🐈onomy and consumers.

For instance, the 澳洲幸运5开奖号码历史查询:Smoot-Hawley Tariff could be perceived as worsening the Great Depression in the 1930s. In an attempt to 澳洲幸运5开奖号码历史查询:strengthen the U.S. economy during the Great Depression, Congress passed the Smoot-Hawley Tariff Act, which increased tariffs on farm products and manufactured goods coming into the United States.

In response, other nations, also suffering from economic malaise, raised tariffs on American goods, bringing global trade to a standstill. Because of the tariffs during that era, economists have estimated that overall world trade declined about 66% from 1929 to 1934.

A Laissez-Faire Approach to Trade

Since then, policymakers on both sides of the aisle have shied away from the use of trade barriers, like tariffs. They've preferred the free-market policies that allow nations to specialize in certain industries and incentivize optimal efficiency.

This more-or-less laissez-faire approach to U.S. 🐠trade remained in place after World War II and up until the election of President Donald Trump in 2016.

Tougher Talk About Trading Partners

Trump was one of a few presidents to speak openly about trade inequities and the threat of tariffs when he vowed to take a tough line against international trading partners, esp♑ecially China.

He claimed this would help Ame🎀rican blue-collar workers displaced by what he descri🍒bed as unfair trade practices.

In addition to tariffs on Chinese imports, the Trump administration also levied taxes on products made in Canada, Mexico, and the European Union (EU), among others.

Some of these were subsequently rolled back by the Biden administration. However. President Biden never removed the tariffs on Chinese goods imposed by Trump. In fact, later in his administration, Biden increased them.

Example of Tariffs

The First Trump Administration

The conversation about tariffs grew during the first administration of President Trump as part of his economic policy, which was known as “America First.” This policy concerned American 澳洲幸运5开奖号码历史查询:protectionism, which typically means more tariffs.

The first tariffs imposed in 2018 were on solar panels and washing machines. Robert Lighthizer, the then-澳洲幸运5开奖号码历史查询:U.S. Trade Representative, announced that after consulting with the Trade Policy Committee and the U.S. International Trade Commission, Trump decided that “increased foreign imports of washers and solar cells and modules are a substantial cause of serious injury to domestic manufacturers.”

The first 1.2 million imported washing machines would be taxed at 20%. Subsequently imported ones would be taxed at 50% in the following two years. Imported solar panel components would be taxed at 30%, with the rate declining over four years.

Soon after, the Trump administration slapped tariffs on imported aluminum. After that, a 25% tariff on all imported steel was imposed, in addition to the 10% tariff on aluminum in many countries.

What is notable here is that many of these countries were top trading partners and allies of the U.S. They were not happy with these additional tariffs. In response, the EU issued a 10-page list of tariffs on 澳洲幸运5开奖号码历史查询:U.S. goods, ranging from Harley-Davidson motorcycles to bourbon.

The Reaction of Economists

In a survey of economists conducted by Reuters, the🍌 Trump administration’s tariffs were very poorly rꦛeceived.

Almost 80% of the 60 economists surveyed believed that the tariffs on steel and aluminum imports would actually 澳洲幸运5开奖号码历史查询:harm the U.S. economy.

The rest believed that the tariffs would have little to no effect. All in all, none of the economists surveyed thought that the tariffs would benefit the economy.

The Result

So, did the Trump tariffs work in the end? According to economists from various nonpartisan and bipartisan thi🧸nk tanks, the answer is a resounding no.

A CNBC study discovered that Trump’s tariffs actually hurt consumers greatly and equaled one of the largest U.S. tax increases in decades.

Researchers also found that the Trump tariffs lowered the real income of American workers and reduced 澳洲幸运5开奖号码历史查询:gross domestic product (GDP) growth.

In 2021, the Biden administration worked to change many of these harmful trade barriers.

U.S. Tariffs on China 

Fears of an all-out U.S. trade war seemed to be validated as the first Trump administration imposed more tariffs, this time on China. They came after the Office of the United States Trade Representative (USTR) released the results of its Section 301 investigation into China’s trade practices.

The approximately 200-page report called out China’s use of preferential industrial policy to unfairly support Chinese firms, discrimination against foreign firms, and disregard for intellectual property.

Trump, in response to what he said were China’s unfair trading practices, imposed sweeping tariffs on $34 billion worth of Chinese goods. The tariffs targeted manufactured technology products from flat-screen televisions, aircraft parts, and medical devices to nuclear reactor parts and self-propelled machinery.

China promptly retaliated by imposing its own tariffs on U.S. agricultural products such as pork, soybeans, and sorghum.

The Chinese tariffs targeted American farmers and big industrial-agriculture operations in the Midwest—the same political group🧸s that voted for Trump in 2016 and, in theory, had the most influence on his policies.

The trade war continued after this, with both countries increasing tariffs—the U.S. in particular imposing levies on $200 billion worth of Chinese imports.

These tariffs were shown to reduce employment and economic output, impacting the overall U.S. economy and people’s livelihoods. They also did significant damage to relationships with 🐭other countries, particularly🔜 allies.

The Bottom Line

🐎Tariffs are taxes imposed on imported goods. They often result in higher prices for consumers. They can impact various demographics, and 💞in particular burden lower-income consumers. They pose challenges for small businesses reliant on imported materials.

The first Trump administration focused a great de༒al of its attention on imposing tariffs. Broadly speaking, most economists feel they had little impact, positive or negative, for the overall economy of the U.S.