Jan 17, 2019

Tariffs Are Taxes: They cause more harm than good

Post by Freedom Partners

President Trump and other supporters of trade restrictions have claimed that tariffs fill our national coffers with money, protect and strengthen domestic industry and work to lower other trade restrictions worldwide.

But is that true?

First, while tariffs do generate revenue — indeed, the government recently reported it raised $6.7 billion more in tariffs than in the previous year — it doesn’t come from foreign governments, their citizens or foreign producers.

When the U.S. government slaps tariffs on imports, that may hurt foreign producers, but the money they lose doesn’t go to the American government. Any economic pain they suffer is entirely the result of reduced demand for their goods.

Tariffs are paid by U.S. businesses when they import foreign-made goods. Oftentimes the businesses can absorb the additional costs, but in many cases the additional costs to businesses are passed on to American consumers who buy those goods at higher costs.

After all, that’s what a tariff is: A tax on American consumers.

What’s more, from a federal budget perspective, we’re still underwater, due to the aid package provided to farmers hurt by foreign tariffs that were raised in retaliation to the administration’s tariffs.

The price tag for that aid is estimated at $12 billion.

Nevertheless, as we noted back in September 2018, America’s farmers would be better off with greater access to international markets, and not simply an aid package that does nothing to address the causes of their economic hardship. That would require dropping our tariffs.

The costs of tariffs always outweigh any benefits. We pay massively in subsidies to farmers, while suffering enormous costs to consumers and crumbling supply chains that hurt businesses.

Are they an effective bargaining tool to lower trade restricted erected by other countries, as the administration claims?

To date, our tariffs have been met only with foreign tariffs on our own products, with no significant concessions. But, as Dan Mitchell notes in his trade series for Freedom Partners, international trade organizations and agreements — like the World Trade Organization — are far better and producing favorable trade outcomes than tariffs.

The administration should drop its tariffs. Such a move would strengthen American businesses, protect American jobs and afford American consumers a greater array of high-quality, inexpensive goods.

Tell Washington: We need a zero-tariff trade environment.