What is a Tariff?

Tariffs are NOT paid by the country originating the goods.

If you are scratching your head trying to remember the last time you heard the word Tariff used, it may have been in the film Ferris Bueller’s Day Off when Ben Stein, playing the role of economics teacher at the suburban Chicago High School—a role he played in real life at schools like American University and UC-Santa Cruz—tried to explain to a classroom of bored students the folly of the Smoot-Hawley Tariff Act of 1930. The Act did not work, and the Depression deepened.

A tariff is a tax imposed on goods imported from a foreign country. It is paid by the importer, who often passes it along to the consumer. Tariffs are NOT paid by the country originating the goods. Tariffs are paid by the importer, and if the importer can recover that cost by passing it along to the consumer, then it is ultimately paid by the consumer.

Why would anyone want American consumers to have to pay more for goods coming from overseas?

Those who impose tariffs want to steer consumers to the “American made” products. It is a protectionist tactic of another era. After the American Revolution, tariffs were levied to protect American manufacturers and farmers from foreign producers. In those days, goods were relatively uncomplicated. They were made from start to finish in one place, with supplies that were readily available close by. The same cannot be said today. In order to produce today’s products, the raw materials may be sourced from all over the planet.

Many would credit the free and fair-trade movement that started after World War II with fostering greater economic prosperity across the world. By breaking down the barriers to trade, manufacturers who make a great product affordably become dominant. Borrowing a metaphor from an NPR commentator, one could compare manufacturers protected by tariffs to plants living in a terrarium. The terrarium is a completely controlled environment for those tender plants. They may thrive there, but if one removes a plant from that perfect little eco-system, it often can’t survive in the wider world. So, in the end, tariffs don’t protect a country’s manufacturers either.

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