Incoming President Donald Trump has made his feelings about tariffs very clear: “The word 'tariff' is the most beautiful word in the dictionary,” he has said. “I think it's more beautiful than 'love'.” …I like the tariff…music to my ears!”
And what exactly is the tariff? This is a tax. According to Dartmouth economics professor Doug Irwin, “In American history, we're basically just talking about import tariffs, taxes on imported goods coming into the U.S.”
Irwin says governments have all kinds of reasons for imposing tariffs: “Sometimes it's to reduce the trade deficit. Sometimes it's to bring back jobs. Sometimes Sometimes it's to punish other countries for their unfair trade practices so we can take a cut.” Income Tax.”
In its most fundamental form, a tariff works like this:
Suppose we import a product from China. The price is $50. But before you can buy it, our government They say Price $25. That's the tariff. Yours Final price is $75. China gets its $50; The extra $25 is going to the US treasury.
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but who pays This tariff?
According to Trump, these are other countries. “Trillions and trillions of dollars are coming into the treasury of the United States,” is his description of what happens. “China paid out hundreds of billions of dollars during my tenure.”
But as Irwin points out, tariffs don't work that way!
“I think economists would say it's very misleading to say this is what's going on,” he said. “Of course, it is American consumer They are paying them, not China itself. “China is not writing checks to the U.S. government.”
Rather, it is a transfer of funds from consumers to the federal government. One tax.
Tariffs have been a part of international trade since our country's founding; The first was planted by George Washington! And what we have learned from history is that these often have unintended consequences.
We have a tariff on sugar which has doubled the price of sugar. It has helped our sugar cane farmers in Louisiana and Florida, but it has driven 34% of American chocolate and candy manufacturing (and jobs) out of the country.
Then, in 2018, there was Trump's 25% tariff on imported steel. Our steel manufacturers prospered, but companies that made things from steel (like Ford, GM and Caterpillar) suffered huge losses. Just ask Ford's then-CEO Jim Hackett, who told Bloomberg in 2018, “The metals tariffs took about a billion dollars out of us. If it continues much longer, there will be much more lost.”
Tariffs against a particular country may have the opposite effect. Irwin said, “With China's tariffs, we're importing too much from Vietnam, we're importing too much from Malaysia. If the idea with the tariffs was to bring jobs back home, instead we're moving them. Are doing.” From China to Vietnam, in some senses.”
And PS: Tariffs don't just raise prices on imported goods; They can affect the price of domestic Substitute also.
So, if there is a tariff on imported steel, and I'm an American steel producer, I might opportunistically say, “Okay, now I My prices might go up too!”? Absolutely! Irwin says: “Consumers no longer have a choice. They can buy really high-priced steel, or they can buy you.”
Finally, there is the problem of retribution. “When we put steel tariffs on, the EU and China got very angry with us,” Irwin said. “And what did they do? They raised tariffs on American agricultural goods. So, suddenly, American farmers who had nothing to do with steel found that their sales abroad were limited.”
Even Ronald Reagan could tell you that. In fact, he did it! In 1987, Reagan said, “Higher tariffs inevitably lead to retaliation by foreign countries and the beginning of fierce trade wars. The result is greater and greater tariffs, higher and higher trade barriers, and less and less competition.”
So, what tariffs has Trump actually proposed? During his campaign, he promised that as president he would “Stages in the System of Universal Base Tariff.” Basically, he outlined tariffs across the board – Everyone product, in Everyone range, from Everyone Country in the world. “We are going to charge them 10 to 20 percent,” he said.
Now, every recent president has supported some tariffs. For example, the Biden administration retained some of Trump's first-term tariffs and imposed its own 100% tariffs on Chinese electric cars. But these tariffs have always targeted particular categories of products. “A blanket tariff? It's not targeting any particular item or product, it's not targeting any particular country,” Irwin said. “It's just saying, 'All imports, all sources are affected by this tax.' This is a very different type of tariff.”
And won't we then see prices rising Everything? “We will Definitely Notice,” Irwin said.
more recently, Trump proposes double-digit tariffs on everything imported from Mexico, Canada and ChinaThey will raise the prices we pay for things like fruit, lumber, electronics, oil, medicine, metals and beef.
Studies have calculated that those tariffs Would cost 1% of all American jobs (According to the Peterson Institute for International Economics); Average car prices increase by $3,000 (According to Wolf Research); And Costs every American family at least $1,000 a year (According to Yale Budget Lab).
But Trump's transition leader Howard Lutnick has predicted that his boss will not impose taxes on imported goods for which there are no American-made substitutes. In September, Lutnick told CNBC, “Tariffs are a wonderful tool for the president to use. They're a wonderful tool. But he understands, don't put tariffs on things we don't make. If we don't make it And you want to buy it, I don't want to raise the price.”
But maybe Trump has no intention of actually imposing tariffs? Perhaps he is playing a strategic game – tariffs as a negotiating tactic?
“Tariffs can be used as a threat and a bargaining tool,” Irwin said. “And sometimes, if you're really credible, just threatening a tariff is enough to get the other country to change its policy the way you want without ultimately imposing tariffs. “
Finally, when a government wants to achieve an economic or geopolitical goal, it can use all kinds of different tools: subsidies, tax breaks or penalties, trade agreements, regulations, certification, investment incentives, diversification. .
According to Doug Irwin, tariffs are also a powerful tool. they rarely occur Best One. He said, “What economists have concluded is that tariffs generally have a lot of unintended consequences, it can lead to a blowback where other countries retaliate against you, and so it is less effective in achieving those goals.” “It's not a really good policy tool for what we all Americans want to achieve.” ,
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The story is produced by Dustin Stephens. Editor: Ed Givnish.
