Overlook the term 'tariff', as it essentially equates to a tax.
Regarding the 2024 political race, it's worth remembering a fundamental truth from Econ 101: Tariffs equate to taxes on Americans. If you're already rolling your eyes due to familiarity, feel free to move on. However, many individuals, including ex-President Donald Trump, seem to fail to grasp this concept. As reported by CNN, Trump has repeatedly and wrongly claimed that China pays for the tariffs he imposes.
Trade doesn't function this way – not currently, never has. When the US government imposes tariffs (read: taxes) on goods coming from countries like China, the actual funds flowing into the US Treasury originate from American companies engaging in imports. To survive, these companies must recoup those expenses elsewhere, and this usually means increasing prices for consumers. Take a look at this helpful chart from Annette Choi and Katie Lobosco:
TL;DR: The conclusion is always the same – customers end up shouldering the burden.
Recently, a widely shared TikTok video emphasized how the political discourse surrounding tariffs has drifted away from reality. The video features podcaster Sean Kelly interviewing progressive commentator David Pakman about Trump's policies. Kelly, to his credit, openly admits his confusion.
Upon learning about the way tariffs harm American businesses, Kelly expresses bewilderment. “So China isn’t paying tariffs now?” he asks. Once Pakman explains it, Kelly remains perplexed. “I honestly didn’t realize that,” he admits, “I thought China was footing the bill... why would he do that?”
Economists from both sides of the aisle share this curiosity.
Despite this, Trump remains committed.
During an interview with Bloomberg at the Economic Club of Chicago, Trump refused to acknowledge that his tariffs would raise costs for everyday goods.
“I just love the word tariff,” Trump declared at one point. When Bloomberg News Editor-in-Chief John Micklethwait questioned the negative effects, Trump continued insisting that his policies would protect domestic businesses.
Micklethwait acknowledged, “It’s just plain math:” We import $3 trillion worth of goods every year, and free trade ensures relatively low prices on a variety of items. Implementing tariffs on all of these goods would raise prices, leading to increased inflation.
For years, this playbook has been demonstrated. After Trump imposed tariffs on Chinese imports, President Joe Biden and Vice President Kamala Harris continued these tariffs and even expanded them on semiconductors, electric vehicles, and other products to bolster American manufacturing and clean energy development.
American consumers have long been paying for these tariffs, with numerous studies confirming this fact.
However, it's essential to assess Trump's first-term trade policies against the context of the substantial tariff surge he's intending if he's reelected.
Trump has positioned tariffs as the cornerstone of his economic policy, pledging to significantly increase tariffs on imports from all over the world. As Katie Lobosco explains, in addition to restrictions on China, new tariffs of up to 20% on all foreign imports into the US have been proposed. Trump has also suggested imposing up to 60% tariffs on all Chinese imports and a “100% tariff” on countries that switch away from using the US dollar.
Mainstream economists find this stance confusing.
“Economists support tariffs in specific contexts – national security, for example,” said Scott Lincicome, vice president of general economics at the Cato Institute, on The Atlantic’s Good on Paper podcast. “But economists generally dislike tariffs due to their expense – an inefficient, unfair tax on lower-income individuals who spend a considerable portion of their income on imported goods. Nonpartisan research from the Peterson Institute estimates an annual cost of more than $2,600 for a typical middle-income household.”
According to the Peterson Institute, Trump's tariffs in conjunction with his plans to deport immigrants and control Federal Reserve interest rate decisions would lead to inflation, stagnant growth, and reduced employment.
Harris has criticized tariffs as a “sales tax on the American people,” but has yet to specify whether she would maintain or roll back these trade restrictions.
In essence, despite its charm for Trump, the story he tells about tariffs is largely fictitious. Prices rise and trading partners retaliate.
“It’s a toddler’s mentality,” David Kelly, chief global strategist at JPMorgan Asset Management, told Matt Egan. “You bully someone and expect them not to retaliate.”
Businesses often bear the brunt of tariffs, as they need to recoup the costs imposed by the government by increasing prices for consumers. Economists from various political backgrounds find Trump's commitment to significantly increasing tariffs on imports confusing, as mainstream economists generally dislike tariffs due to their expense and impact on lower-income individuals who spend a significant portion of their income on imported goods.
