Trump’s Tariffs are a Tax on Americans

“Tariffs are a tax on the economy.” – Alan Greenspan

Tariffs are taxes intended to make foreign goods more expensive. Overlooked are how the secondary consequences of tariffs have deleterious effects that filter through the entire domestic economy.

Tariffs are a tax on consumption. Tariffs paid by importing businesses are passed on to consumers in the form of higher prices for (a) the imported goods, (b) their domestic counterparts, and (c) domestic goods that are manufactured from imported components.

If the price of an imported good is high enough, new manufacturers are attracted to this business, forcing consumers to subsidize an entire industry. The more consumers have to pay for certain goods, the less of their income they have left over with which to buy other goods and services. This results in lower sales and lower employment across many industries. In order for one industry to grow, other industries have to shrink.

Foreign industries who find their markets cut off have no more incoming American dollars with which to buy U.S. goods. American exporting businesses thus suffer in direct proportion to American importing businesses.

In 2018, the Trump Administration imposed a broad range of tariffs that included 25% on steel and 10% on aluminum. The Alliance for American Manufacturing claimed that these tariffs created or saved 12,700 jobs at steel and aluminum factories. A Washington based consulting group also claimed that these tariffs resulted in a loss of 146,000 jobs across many industries that are now forced to buy overpriced steel and aluminum as raw materials in a wide range of products.

In response to the Trump tariffs, China officially withdrew from buying American agricultural products. U.S. farmers suffered painful losses, for which Trump overcompensated by giving them $56 Billion in aid during 2019 and 2020. This is $56 Billion paid for by consumers as taxpayers.

Reference: Rowland D. Exquisite Economics: In Its Simplicity. Seattle, 2020: Amazon.com Inc., pp 55-57.