Trump’s Tariffs: Who Benefits?

Tariffs have emerged as one of the key points in America’s 2024 Presidential race. Trump’s plan is to have at least 10% duties on all imports. Harris has said this is a “national sales tax” which will send inflation soaring and cost each American family thousands of dollars. 

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased revenue as imports enter the domestic market. Domestic industries also benefit from a reduction in competition, since import prices are artificially inflated. 

Unfortunately for consumers—both individual consumers and businesses—higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers, and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this period, some businesses will profit, and the government will see an increase in revenue from duties. 

Source: https://en.wikipedia.org

 In the long term, these businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income. 

Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open. 

The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). 

Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods and can reduce the likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints.

Organizations like the WTO attempt to reduce production and consumption distortions created by tariffs. These distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased. 

Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has improved global integration and brought about globalization. Multilateral agreements between governments increase the likelihood of tariff reduction, while enforcement of binding agreements reduces uncertainty. 

So, tariffs are a short-term solution for an immediate industry or trade problem. It is not a long-term panacea. Why? They create inefficiencies and attract retaliatory tariffs, and no-one wins in this game. If Trump wins, our exports - palm oil and electronic goods are going to be hit! Can we survive?

 

Reference:

The basics of tariffs and trade barriers, Brent Radcliffe, Investopedia, updated 26 June 2024