Tariffs are a tax imposed by a home country on the imports of a foreign country. This import duty is paid at the port of entry by the import/export company and the cost of the tariff is added to the price of the product, ultimately serving as an indirect sales tax on consumers. Tariffs have been used by governments as an economic tool to discourage domestic consumers from purchasing cheaper foreign goods, hoping to “protect” domestic industry by making more expensive domestic goods competitive. Policymakers run the risk of sparking a trade war if they enact tariffs; foreign countries hoping to “level the playing field” won’t want their exports to become priced out of the market, so in response they will enact retaliatory tariffs on imports from the country in question. Trade wars ultimately hurt both ways.
During the U.S. China Trade Wars, retaliatory tariffs both ways created an “economic decoupling” of the two countries economies ending the benefits of economic globalization in hopes of reviving lost Middle America steel and manufacturing jobs. In many ways Protectionism is an example of government intervention in the economy, picking winners and losers. The debate over Protectionism is one that has gone on throughout American History and has proven to be mostly counterintuitive to economic growth. Tariffs are simply a tax that government economists dress up as being “strategic.” In reality, protectionist trade policy gets governments further involved in the economy hurting consumers and distorting free markets with unintended ripple effects. The PBS Video below explains the economic fallout behind U.S. trade policies.