Author: Lucy Cox, Graphics: Danielle Hwang
The BRB Bottomline: Tariffs are the hot topic of economic policy this election, with both sides embracing protectionist tariff policy. But do Americans fully understand the real-life implications of tariffs?
When presented with the possibility of a tariff on blue jeans, a staple piece of clothing in American society, a majority of Americans claim they would support such measures. However, when confronted with the reality that such a tariff may induce a $10 price increase on blue jeans, it flips and the majority oppose such tariffs. So what does this simple poll tell us about the American public? It shows how Americans are highly uneducated on the actual effects of tariffs on consumer prices.
In the midst of election season, tariff debates abounded in social media, traditional news outlets, and among policymakers. Before President Trump’s first term, tariffs were a fairly mundane issue, and definitely did not attract the same sorts of heated debates as hot-button issues like abortion or gun control. However, the first Trump Administration’s policy relating to tariffs and the Biden-Harris Administration’s continuation of these policies have made the issue a major topic in the 2024 election.
Proponents of tariffs resort to the argument that tariffs will boost domestic production and punish foreign exporters, specifically China. Proponents often believe that tariff revenues will be able to replace existing tax policies, reducing the tax burden on regular Americans and instead placing it on foreign companies. However, there are many misconceptions about tariffs, especially regarding who pays the price of a tax on imports.
Tariffs are a Tax
Put in the simplest of terms, a tariff is a form of taxation. When a domestic government enacts a tariff on another country, the imports from that country will be taxed. In theory, these taxes are set by the domestic government as general or good-specific tariffs, collected by Customs and Border Patrol (CPB), and are paid by the exporting country. Currently, tariffs are most prominently used today as bartering tools in trade wars initiated by the U.S., in a perceived effort to reduce its dangerous trade deficit, yet, tariffs have a very complicated history.
A Brief History of Tariffs
In the past, most modern developed countries used tariffs to increase tax revenue and protect domestic industry, particularly in the 16th through early 19th centuries, when mercantilist policies dominated the globe. Great Britain utilized a variety of tariffs and other protectionist policies to consolidate their global superpower status in the 19th century. Following its independence, The United States instituted many tariffs and protectionist economic policies as a means of growing revenue, boosting nascent domestic industry, and preventing reliance on European manufacturing.
However, in the 19th and early 20th centuries, cracks in the tariff argument started to show, as policymakers noted they are only of use for a short time to developing countries, and not of any use to globally-integrated developed countries. A prime example of this is the infamous Smoot-Hawley Tariff Act, which many argue contributed to the devastating prolongation of the Great Depression. Thus, post-Great Depression, the growth of the United States as a dominant power and liberalization of economic policy led many developed nations to abandon protectionist tariffs and embrace free trade. This was solidified by the end of World War II and with the establishment of stronger international institutions, like the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) who promote international cooperation and free trade.
So, while tariffs were used originally to develop major world economies and generate national revenue, the use of tariffs by the U.S. nowadays has more to do with protecting domestic industry and has resulted in ongoing trade wars. Although policymakers still cite revenue generation as a reason for imposing tariffs, it may not be producing the desired effects. While the costs of tariffs used to be shifted to the exporting businesses who reduced their prices to retain their market share, nowadays, those who bear the brunt of tariffs are American consumers and firms.
With the protectionist policy proposals of today, it seems as if we have historical amnesia. The United States became the richest country in the world through free trade, which was once championed by conservative icons like Ronald Reagan and Margaret Thatcher, hallmarks of early American history like Thomas Jefferson, and “New Democrats” like Bill Clinton. Even Mr. Trump, the self-proclaimed “Tariff man,” signed into law the U.S.-Mexico-Canada trade agreement, which replaces NAFTA by strengthening and modernizing North American trade, focusing on the automotive industry, intellectual property, digital trade, and labor standards. However, the tariff policies today are not taking into account the detrimental effects they have had on consumer prices and world trade in the past.
Image 1: Mexican President Enrique Pena Nieto, President Trump, and Canadian Prime Minister Justin Trudeau sign the US-Mexico-Canada Trade Agreement before the G-20 Summit in 2018.
Who Pays for Tariffs?
The import tax cost of the tariff could fall on either, or all of three actors: domestic businesses, foreign businesses, and domestic consumers. However, as stated earlier, the brunt of tariffs has shifted historically from exporting foreign businesses to domestic economic actors. A Tax Foundation study found that tariffs imposed by President Trump and retained by President Biden hit American firms and consumers hardest, rather than foreign exporters. This is because when the U.S. government imposes tariffs on foreign imports, domestic businesses pay import taxes directly to the government when they purchase products from exporters affected by the tariff. Since tariffs simply tax, rather than ban these items from these exporters, many American businesses will continue purchasing products from countries affected by the tariff.
While costs from these taxes could have been shifted to foreign businesses, thereby lowering their costs to preserve their market share, studies found that the tariffs enacted under President Trump starting in 2018 and kept under President Biden shifted the cost almost entirely to U.S. firms or consumers. This cost shifting to U.S. consumers is found to have an annual $16 billion net loss to the U.S. economy. Additionally, U.S. businesses with immense market power have been found to over-shift the cost burden of the Trump-Biden tariffs onto U.S. households, jacking up consumer prices even more than economists anticipated.
In addition to specific U.S. tariffs, any country that imposes tariffs on an exporting country suffers from the risk of the exporting country instating retaliatory tariffs, which in turn would harm the very industries original tariffs were designed to protect. For example, after President Trump doubled levies on Chinese imports to 20% on March 4, 2025, China struck back with 15% levies targeting US farmers. While recent U.S. tariffs only had a marginal effect on recent inflation numbers, it is still important to evaluate their impact on consumer prices.
What is the Current Policy on Tariffs?
In 2018, then-President Trump began a trade war with China by raising tariffs on goods like washing machines, solar panels, steel, and aluminum coming from China. These tariffs were found to have affected around $380 billion worth of trade, producing a tax increase on American businesses and consumers of nearly $80 billion.
While the former Biden-Harris Administration shifted language towards tariffs to a more targeted and less combative approach, their actions have not always reflected this. In fact, the Biden-Harris Administration continued and even increased many of the tariffs President Trump put in place against China, resulting in further price increases for American consumers. China responded by urging the Biden Administration to “correct its wrongdoing,” yet their behemoth trade surplus likely shielded them from considerable damage from Biden’s tariffs.
In April 2024, the Biden-Harris Administration finalized tariff hikes on Chinese-made products, which included a 100% tariff rate on Chinese electric vehicles, a 50% rate on solar cells, and a 25% rate on EV batteries. This placed tariffs on about $300 billion worth of Chinese imports, and increased tariffs on about $15 billion worth of Chinese imports. While the Biden-Harris Administration upped the ante on Chinese tariffs, they suspended certain tariffs against the European Union. The Biden Administration’s tariff policy seemed to be embracing a new protectionist norm set by President Trump, yet the 2024 U.S. election seemed to finalize the embrace of protectionist policies on both sides of the aisle. President Trump’s election and early weeks of his first term have been a whirlwind of negotiating tariffs, and he has often been successful in using these threats to extract political concessions.
Image 2: President Joe Biden signs a document imposing new tariffs on various Chinese imports.
What is the Trajectory of Future Policy on Tariffs?
The 2024 election between President Trump and Vice President Harris featured relatively minor differences on tariff policies (and even their broader economic policies) compared to past elections. On the campaign trail, President Trump proposed a universal tariff of 10%, and then later suggested he would up that to 20%. Additionally, President Trump has suggested he would strip China of their most-favored-nation status and even suggested he would instate a 60% tariff on all imports from China.
On the other hand, while her policy proposals were not as detailed as President Trump’s, Vice President Harris also ran and governed on protectionist sentiment. Historically, Vice President Harris had even been less open to free trade than President Trump. For example, then-Senator Harris was one of 10 senators to vote against Mr. Trump’s U.S.-Mexico-Canada trade agreement, citing environmental concerns. However, Vice President Harris’s support for tariffs against cheap clean energy products like solar panels, EVs, and EV batteries didn’t demonstrate consistent support for environmental concerns over trade. Vice President Harris called for more subsidies, and continued to support tariffs on China like the ones her administration pushed.
Both President Trump and Vice President Harris embraced tariffs on the clean energy and electric vehicles industry in particular, citing the dangers of becoming dependent on China for critical energy supply. For instance, the Biden-Harris Administration approved a 100% tariff on Chinese electric vehicles, a 50% tariff on Chinese solar cells, and a 25% tariff on Chinese lithium-ion batteries. Mr. Trump has proposed a 100% increase on all imported electric vehicles on the campaign trail. Since taking office, President Trump has largely used tariff threats as a way to leverage political concessions. For example, President Trump kicked off his tariff agenda on January 26th with 25% tariffs on all Colombian imports after Colombian President Gustavo Petro turned away two US military aircraft carrying migrants being deported back to Colombia. President Petro initially imposed retaliatory tariffs, only to renege and accept the migrants. Additionally, President Trump also announced hiked tariffs on China, Mexico, and Canada (our top three trading partners) by declaring a national emergency over illegal immigration and drug trafficking. President Trump later agreed to a pause the tariffs on Mexico and Canada after the countries agreed to take steps to curb the immigration and drug crises. Since, President Trump has oscillated between threatening, imposing, and revoking tariffs, with some of the most severe against the European Union, who announced they would be introducing retaliatory tariffs.
How Will Businesses and Consumers be Affected by These Policies?
While tariffs could appreciate the US dollar, this could also make it more difficult for the US to export goods since they would be more expensive for foreign importers. As of March 2024, trade war tariffs have generated more than $233 billion of higher taxes for the U.S. government from U.S. consumers (62% has been during the Biden Administration, 38% during the Trump Administration). Yet this revenue is still the result of higher consumer prices. For example, Walmart, which targets consumers looking to have low prices, announced they would increase prices as a result of President Trump’s tariffs.
Tariffs have become a gamble between exporters worried about market share, importers worried about profit, and domestic consumers grappling with rising prices. Tariffs have the capacity to generate government revenue from import taxes and have been floated to replace lost revenue from cutting income or other forms of federal taxes, yet their costs can raise consumer prices on poor and lower-class Americans relying on cheap foreign imports.
Take-Home Points
- Historically, many states have instituted tariffs to reduce trade deficits and develop nascent domestic industries
- Domestic businesses and consumers pay the tax from tariffs, not the exporting country
- Tariffs will likely raise prices for domestic consumers, but could appreciate the value of the US dollar
- Free trade increases the level of economic output
- While higher tariffs translate to higher costs for domestic consumers and businesses, domestic industries are protected by industry-specific tariffs
- Future policy looks as if it will be embracing tariffs, on both sides of the political aisle