Tariffs have recently gained significant attention, and this overview delves into their definition, implications, and historical context. Tariffs are essentially taxes imposed on imported goods, calculated as a percentage of the price paid by a buyer to a foreign seller. In the United States, Customs and Border Protection agents collect these tariffs at 328 ports of entry across the nation. The rate of tariffs can vary widely based on the type of product; for example, passenger cars are typically subject to a tariff of 2.5%, while golf shoes incur a rate of 6%. There are exceptions for countries that have trade agreements with the U.S., such as the agreement between the United States, Mexico, and Canada, which allows most goods to be traded without tariffs.
Economists generally express skepticism about the effectiveness of tariffs. They argue that tariffs raise costs and do not contribute positively to economic prosperity. A common misconception is that foreign countries bear the cost of tariffs. In reality, American companies, the importers, pay these tariffs, and they often pass on the increased costs to consumers, leading to higher prices for goods. Consequently, it is typically the consumers who ultimately pay for these tariffs. Additionally, tariffs can negatively affect foreign countries by making their products more expensive and less competitive in the U.S. market. Research conducted by Yang Zhou, an economist from Shanghai's Fudan University, concluded that the tariffs imposed by Trump on Chinese goods did more harm to the Chinese economy than to the U.S. economy.
Former President Donald Trump has been a vocal advocate of tariffs, claiming they would create jobs, reduce the federal deficit, lower consumer prices, and enable the government to fund childcare programs. He referred to tariffs as "the greatest thing ever invented" during his presidential campaign and actively imposed various tariffs targeting imports, notably from China. His approach represented a significant departure from post-World War II trade policies that had favored free trade and lower tariffs, a shift often attributed to the perceived loss of U.S. manufacturing jobs and the rising influence of China.
Tariffs are primarily utilized to protect domestic industries by increasing the cost of imported goods. This protectionist approach can also serve as a punitive measure against foreign nations that engage in unfair trade practices, such as subsidization or dumping products at below market value. Historically, before the introduction of the federal income tax in 1913, tariffs were a critical source of revenue for the U.S. government, accounting for up to 90% of federal revenue from 1790 to 1860. With the rise of global trade after World War II, the reliance on tariffs as a revenue source diminished.
In the fiscal year ending September 30, 2022, the government collected approximately $80 billion in tariffs and fees, which is substantially less than the $2.5 trillion generated from individual income taxes. Despite this limited revenue, Trump aimed to reinstate a budget policy reminiscent of the 19th century. He also viewed tariffs as a strategic tool for geopolitical leverage, famously stating he could use them to prevent conflict with threatening nations.
Economists, however, often view tariffs as counterproductive. They increase expenses for companies and consumers relying on imports and can provoke retaliatory measures from other countries. For instance, the European Union and China responded to Trump's tariffs by imposing their own tariffs on American products, such as bourbon and soybeans, targeting sectors critical to his support base. A collaborative study by various prestigious institutions found that Trump's tariffs did not lead to increased employment in the targeted sectors, nor did they restore jobs in the American heartland where they were intended to help. Even after the implementation of tariffs on steel imports, job numbers in U.S. steel plants remained relatively unchanged, with larger retail corporations like Walmart employing significantly more individuals.
Furthermore, the retaliatory tariffs had adverse effects on American employment, particularly harming farmers, which was only partially mitigated by government aid. Nevertheless, while the practical outcomes of Trump's trade policies may have been lacking, they were politically successful, galvanizing support for Trump and Republican candidates in manufacturing-favored regions of the Midwest and Southern states.
