Let's Discuss Tariffs

A secret tax.

Synopsis

The word "tariff" means "tax." Consumers end up paying all taxes. If politicians believe some consumers should pay more for the benefit of others, they should say so. To say other countries pay tariffs amounts to massive subterfuge.

Tariffs = Taxation

People shoud not confuse themselves about the nature of tariffs. They represent a form of taxation…always have…always will. Until the passage of the Federal Income Tax amendment, tariffs represented the primary source of revenue for the United States government.

After the imposition of the Federal Income Tax, tariffs became a relatively minor source of government revenue. Somewhere along the way politicians began to use tariffs as a tool for influencing foreign trade, in much the same way they use income taxes to influence American markets.

Consumers Pay All Taxes

So, who really pays tariffs? Foreign governments? Foreign producers? American producers? Or American consumers?

In the end consumers pay all taxes—personal income, sales, corporate, etc.

The only reason for production—at all levels—consists of creating goods for consumers. Miners dig ore to produce steel. Manufacturers use steel to produce machines used to produce goods for consumption or further production.

Taxes become an expense of doing business. Consumers buy goods they value more than the money they give up. In doing so, they pay all the expenses of the business, including taxes (even those called "tariffs").

Tariffs, like all other taxes, may price a producer out of business. In that case, other customers will experience some harm by the loss of business from former employees of closed business.

The connections do not always manifest the same, but the burden always falls on the some consumers.

Taxes Misallocate Resources

Tariffs, like all other taxes, lead to a misallocation of resources.

When producers have to raise prices, some consumers can no longer afford the goods. Consumption of those goods declines.

When producers must pay more for their inputs, they must cut back on the amount they pay for other goods. This may cause a reduction in employment.

Increased taxes have very uneven and complex effects. They turn the win-win structure of the free market into a market of winners and losers based on the preferences of taxing authorities. Tariffs have the same effect, but that effect crosses borders.

Politicians Mislead Consumers/Voters

We should not mislead consumers/voters about the impact of tariffs

When politicians claim that tariffs affect only the other country, they mislead consumers/voters. Those consumers/voters end up paying the taxes we call tariffs, and they should know that fact.

Conclusion

Tariffs consist of a slightly different form of taxation. The burden of taxation always falls on consumers, and they always distort the allocation of resources. Politicians who advocate for the use of tariffs should know that, and they should inform their constituents as such.

If those same politicians feel they can justify tariffs on the grounds of national security, they should tell the taxpayers how they justify the extra expense. If they believe some taxpayers should pay to save the jobs in specific industries, they should explain why.

Remember, government officials spend tax money based on their preferences, not yours.