Supporting Tariffs?

S2: WK: 10 Evaluating the Economic and Political Implications of Tariffs for Supporters.

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Tariffs have been a central tool in international trade policy, shaping economic relations and domestic industries. While some view tariffs as a necessary protective measure, others argue that they create market inefficiencies and harm global trade. Supporters must carefully assess whether tariffs align with their economic and political goals. This article examines the advantages and disadvantages of tariffs and explores how they can be used effectively.

Sources for this Article:

1. Bown, C. P., & Irwin, D. A. (2019). The GATT's starting point: Tariff levels circa 1947. In NBER Working Paper Series (No. 26534). National Bureau of Economic Research.

2. Casey, C.A. (2025). U.S. Tariff Policy: Overview. Congressional Research Service. https://crsreports.congress.gov/

3. Joy, D.S. (2024). Tariffs: What are they, who pays for them and who do they benefit? USC Dornsife College of Letters, Arts and Sciences.

4. Krugman, P., & Obstfeld, M. (2022). International economics: Theory and policy (11th ed.). Pearson.

5. Rodrik, D. (2018). Straight talk on trade: Ideas for a sane world economy. Princeton University Press.

6. Stiglitz, J. E. (2017). Globalization and its discontents revisited: Anti-globalization in the era of Trump. W. W. Norton & Company.

7. The United States of American International Trade Administration (accessed on 13 March 2025 at https://www.trade.gov).

8. World Trade Organization. (2021). World trade report 2021: Economic resilience and trade. WTO Publications.

“A tariff or duty (the words are used interchangeably) is a tax levied by governments on the value including freight and insurance of imported products. Different tariffs applied on different products by different countries … is collected at the time of customs clearance in the foreign port” (USAITA). The Secretary of the Treasury is responsible for collecting tariffs for the United States of America through the agency for U.S. Customs and Border Protection. While export tariffs are taxes imposed on goods leaving the country, and illegal per the U.S. Constitution (Article I, Section 9), import tariffs can effectively provide funds to the government imposing them.

Governments can use tariffs for two distinct reasons. “A protective tariff increases the price of imported goods relative to domestic goods, encouraging consumers to buy from local producers, who are thus ‘protected’ from foreign competition. A revenue tariff, on the other hand, is mainly used to generate money for the government” (Joy, 2024). This also allows a government to protect national security interests by allowing domestic producers to make sensitive products like semiconductors or computer chips versus competing with foreign producers. Giving domestic control over those markets, especially in a time of conflict.

Countries can also impose tariffs in economic emergencies. For example, the United States of America raised tariff rates in 1930, a trend that began increasing in the 1920s and ended after World War II. The United States of America began to decrease its tariffs in 1948 as the economy improved, and it pursued a more liberal strategy for free trade. Allowing the economy to recover and some industries to thrive.

As we decreased tariffs, we also decreased legislative control. The U.S. Congress, which has the authority under the U.S. Constitution to manage tariffs, began to delegate that authority more and more to the Executive Branch. Under the Trade Promotion Authority (TPA) in 1974, the U.S. Congress gave the U.S. President objectives to expedite tariffs. The U.S. Congress continued to authorize the President to adjust tariffs related to foreign policy and national security; the International Emergency Economic Powers Act gave the power to adjust tariffs in a time of war or a national emergency; the Trade Act of 1974 allowed the U.S. President to raise tariff rates based on the U.S. International Trade Commission (ITC) report of sudden import surge or a threat to serious injury on a U.S. industry; and the U.S. Congress has delegated to executive branch agencies to impose duties to offset certain injurious trade practices. (Casey, C.A., 2025). All in the name of liberalization of trade and more expediency.

Most tariffs today are either long-standing or based on a trade agreement between nations. Some are considered unfair or unequal to the opposing countries' tariffs. President George Washington imposed an equal 5% tariff across the board when he was in office. Since then, tariffs have fluctuated and changed based on the reasons we discussed above. However, some tariffs are not so equal. The United States of America has a 2.5% tariff on cars, while the European Union imposes a 10% tariff on cars from the United States of America. Each decision must weigh the positive and negative effects of tariffs.

The Case for Tariffs.

Tariffs can serve as a valuable tool for protecting domestic industries, ensuring fair trade, and securing national interests. They are complex decisions that have second, third, and maybe more orders of effect. Some tariffs only directly affect the industry it is tied to, while some tariffs indirectly affect producers and consumers alike. Let’s first look at how tariffs can be positive.

As we already discussed, tariffs can protect domestic industries. Tariffs can shield domestic businesses from international competition, allowing them to develop and remain competitive (Rodrik, 2018). By imposing tariffs on imported goods, governments can support local production and prevent market disruptions caused by foreign subsidies and dumping practices. The positive is that sales stay domestic and, therefore, money recirculates domestically.

A good example is the United States' Tariff of 1816 that followed the War of 1812. British manufacturers flooded the American market with inexpensive goods to undercut emerging U.S. industries. In response, Congress imposed duties on goods imported from Britain. This protective measure aimed to foster domestic production by making imported goods more expensive relative to American-made products. Yes, people pay more for products, but at the cost of not crashing domestic industries.

Another positive aspect of tariffs we discussed above is generating government revenue. Before the introduction of income taxes, tariffs were a major source of government revenue. While they play a smaller role today, they can still help fund public projects without raising direct taxes (Bown & Irwin, 2019). Most countries operated their governments through export taxes and other tax methods in the past but have slowly moved more towards income tax as their primary revenue source. This means that the more governments tax income, the less they tax in other ways. How convenient for them.

Tariffs encourage fair trade practices. Tariffs can serve as a negotiation tool to counter unfair trade practices, such as currency manipulation and exploitative labor practices (Stiglitz, 2017). They can also help ensure compliance with international trade agreements and encourage reciprocity. A country can use tariffs as a means of economic power, and there are several examples in history of this tactic.

A notable historical example of tariff disparity occurred during the late 19th century, known as the ‘Pork War.’ During the 1880s, Germany imposed high tariffs on American pork products, citing health concerns over trichinosis. In response, President Harrison threatened to impose tariffs on German sugar beets, a significant export for Germany. This pressure led to a reduction in tariffs on pork in 1891.

The United States of America also used tariffs to end exploitative practices in China. The Smoot-Hawley Tariff Act of 1930, the U.S. Fair Labor Tariffs, and the Tariff Act of 1930 (Section 307) were all enacted to ban imports made with forced labor. In recent years, particularly in China's Xinjiang region, there have been concerns over Uyghur forced labor. Tariffs and import bans have been applied to cotton, solar panels, and other products tied to forced labor conditions.

The use of tariffs can also help to safeguard national security concerns. Some tariffs target industries critical to national security, such as steel, semiconductors, and pharmaceuticals, to reduce reliance on foreign suppliers (Krugman & Obstfeld, 2022). This protects production domestically from exports damaging that industry or from over-reliance of a product from one country, especially if conflicts arise or if the industry is essential.

The current semiconductor market is a good example. If two countries that produce most of the worlds semiconductors happen to go to war with each other, it would cripple the industry. Depending on who wins that war, it also could give supremacy to the winner for that industry. Countries can use tariffs to build their domestic capability to reduce the effects of those countries' fighting and, in the aftermath, their market dominance.

The truth is that tariffs can generate revenue for countries, enough to possibly reduce income tax burdens, which would offset the cost increases for those industry products. They are also necessary to stop exploitation and improper economic trade practices. In some cases, it is important enough to weather through the cost increases. They are also a tool of national power to assist in negotiations for fair trade, domestic economy improvements, and promote better security. This all sounds like tariffs are a win, so let’s look into their negatives before we make a final decision.

The Case Against Tariffs.

While tariffs can offer strategic advantages, they also present several economic risks. We have briefly mentioned some of them above, and in this section, we will explore them in more depth. Tariffs will have a negative impact, there are no ways around that fact. You will have to decide whether these negative impacts are worth it for the results they bring.

The first negative impact is increased consumer costs. Tariffs raise the price of imported goods, leading to higher costs for consumers. These price increases can disproportionately affect low-income households, as they spend a larger portion of their income on those goods (World Trade Organization, 2021). These price changes can be short or long term, depending on the tariff, industry, and domestic capabilities. In some cases, price changes won’t be as apparent, especially in the short term.

Some prices won’t change. As Darrin Joy discusses in his article, the United States of America is a “large open economy” that can impose on smaller economies to “terms of trade gain” (Joy, 2024). This is when a smaller market takes a cut in price so they don’t increase prices in the larger economy they rely on. This causes a lower price in the global market for that product but no change in the domestic market. Causing smaller and less wealthy economies to lose profits.

Tariffs can also cause retaliatory trade measures. Other nations often respond to tariffs with their own, leading to trade wars that harm global economic stability. For example, several United States of America and China trade wars have escalated tariffs that disrupted supply chains and increased costs for businesses and consumers. The current tariff negotiations with Canada and the United States of America have created changes in tariffs, mostly as escalations, bearing similar effects.

The European Union increasing tariffs on alcoholic beverages the United States of America exports is another current example. President Trump has threatened in retaliation to increase tariffs on European wine and other alcohols. Each side is poised to damage those industries and increase costs to their citizens. Although these are tools to sponsor negotiations, while in talks, they can have damaging effects on the economy. You can see current stock market downfalls this month for proof.

There is also evidence that tariffs reduce market efficiency. Free trade enables countries to specialize in producing goods where they have a comparative advantage. Tariffs can distort market efficiency by incentivizing domestic production of goods that could be produced more efficiently elsewhere (Krugman & Obstfeld, 2022). When someone has the infrastructure, the system, and the quality that brings people to buy a product, they are positioned to be better. It will take time for a domestic industry to get up to speed, if it is even possible to produce something locally.

A good example of this is currently happening in the United States of America's car industry. There is an unfair trade tariff, as we mentioned above, a 7.5% difference, between the United States of America and the European Union. As each side negotiates to hopefully equalize the levels more fairly, President Trump has asked domestic car companies to build more at home. This may be possible long-term, and some companies can adapt in the short-term, but it will have an effect on car prices and production until everyone is at the same efficiencies. You have to decide if this was worth it.

Lastly, tariffs can be harmful to export-dependent industries. When tariffs are imposed, targeted countries may respond by restricting imports, which negatively impacts businesses that rely on international markets. Agricultural and manufacturing sectors often suffer the most in these situations (Rodrik, 2018). If an industry has its sales largely in global markets, like cultural items or items that sell better outside their home country, a tariff can destroy their profits. The question then becomes, should a government impose changes to tariffs even if it knows companies might suffer?

This can also artificially reduce trade volume in the market. When an effective company has to reduce cost or trade less with a high tariff country, they might lower their production or sales to that country or globally. This could be a negotiation tool or tactic to get the tariff lowered. Scarcity in the market will increase the cost of those products. These reductions can have global impacts, depending on how much a company might dominate that market.

All of these negative aspects of tariffs are important to consider when supporters are thinking through a complicated problem. It is never as easy as the media likes to imply, mostly because they want you on their political side. But good supporters, those that think through problems, are smarter. I want to help provide our supporters with a better discussion on how tariffs can be used efficiently, so join our premium membership for just $10/month to learn more.

Using Tariffs Correctly.

If tariffs are to be used effectively, policymakers and supporters should consider several strategies. Supporters must consider both negative and positive aspects. Some of these outcomes are unpredictable, so understanding what outcomes you want and what effects you are willing to endure is key. Join now and continue reading about some tips to consider when using tariffs.