A tariff is a tax on imported goods, paid by the importer



  • A tariff is a tax on imported goods, paid by the importer.
    • Assuming Lowes bought imported washing machines at $400 per unit in 2018, it would have paid a tax of either $80 or $200 for each machine.
  • Types
    • Specific Tariff — fixed amount per unit
    • Ad Valorem Tariff — percentage of value
  • Tariffs are also called Import Duties or Custom Duties

Foreign countries don’t pay US Tariffs

  • WaPo Fact Checker Trump’s repeated claim that China is paying ‘billions’ in tariffs to the Treasury
    • “So China is now paying us billions of dollars in tariffs” 
    • “Those tariffs are costing them a lot of money, and they’re going into our Treasury; remember that, we’re filling up with billions of dollars.”
      • Trump, at a campaign rally in El Paso, Feb. 11, 2019  WaPo
    • “Billions of Dollars are being paid to the United States by China in the form of Trade Tariffs!”
      • Trump, in a tweet, Feb. 16, 2019 WaPo
    • China does not pay any of these tariffs. The tariffs — essentially a tax — are generally paid by importers, such as U.S. companies, who in turn pass on most or all of the costs to consumers or producers who may use Chinese materials in their products. (Technically, we should note that as a matter of demand and supply elasticities, Chinese producers will pay part of the tax if there are fewer goods sold to the United States.)
    • So, ultimately, Americans are footing the bill for Trump’s tariffs, not the Chinese. The president is fooling himself if he thinks otherwise.

Arguments on Tariffs

Arguments for Tariffs

  • Protectionism
    • Protectionism is the policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors. (Britannica)
    • Trump Administration
      • US imposed tariffs on residential washing machines and solar cells on the grounds that  “increased foreign imports of washers and solar cells and modules are a substantial cause of serious injury to domestic manufacturers.” (ustr.gov)
  • National Security
    • President may impose tariffs on the recommendation from the U.S. Secretary of Commerce if “an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security.” (Wiki)
    • Trump Administration
      • US imposed tariffs on imported steel and aluminum from the European Union, Canada and Mexico on the grounds of national security.  (WaPo)
  • Generation of Tax Revenue
    • Tariffs were the main source of all Federal revenue from 1790 to 1914. (Wiki)
  • Retaliate against other countries for their tariffs, subsidies, import quotas, and other unfair trading practices
    • Trump Administration
      • The tariffs on $200 billion worth of Chinese imports were imposed “in response to China’s theft of American intellectual property and forced transfer of American technology.” (ustr.gov)

Arguments against Tariffs

  • Tariffs increase the price of goods
    • In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this period, some businesses will profit, and the government will see an increase in revenue from duties. In the long term, these businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income. (Investopedia)
  • Tariffs invite retaliatory tariffs, subsidies, import quotas, and other measures
  • Tariffs enable the government to intervene in the free market, picking winners and losers.
  • Tariffs inhibit international trade.
    • International trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad.  (Investopedia)