American Protectionism: Winners, Losers and the Global Impact
By Zach Gurd
The American Case For Tariffs: Corporate Gains or Consumer Pains?
Tariffs have been among the most discussed topics throughout the now-concluded American presidential race. Implementing this trade barrier would have significant implications for both corporate America and U.S. consumers, creating winners and losers as a result of the policy. Advocates for tariffs typically cite a few reasons that tariffs can help the United States. The first is that levying tariffs on foreign goods entering the United States will raise the price of foreign inputs and products, allowing U.S. producers of those products to offer a lower price than foreign competitors. This benefits U.S. producers as they will earn greater profits with tariffs in place. However, advocates for tariffs acknowledge that this harms U.S. consumers, as the price of goods has increased due to increased input costs. Even though U.S. consumers lose in this scenario, tariff supporters argue that the gains achieved by U.S. producers outweigh the losses suffered by consumers. On a small scale, this argument can hold true, as the United States has a significant influence on the global economy. Price increases caused by the U.S. can affect global prices, potentially allowing the country to achieve a net benefit from imposing tariffs.
Government Revenue at the Border
The second reason supporters argue that tariffs are beneficial is that they provide an alternative to income taxes for the government to raise revenue. Tariffs are paid by companies to the United States government to obtain foreign products. One common argument is that, prior to the implementation of income taxes in the 1900s, the United States relied heavily on trade tariffs to fund government expenditures (United States Government, 2024). While this is true, there is a caveat that before the 1900s, there was far less global integration compared to today’s economy. Some might argue the success of tariffs in a pre-globalization era may not be applicable to the dynamics of the modern economy.
The Drawbacks of High American Tariffs
On the contrary, many people do not support the use of tariffs. The main reason is the impact on inflation and economic growth. Tariffs typically are an inflationary action as they cause the prices of key inputs to increase, leading to a subsequent price increase from impacted companies in order to maintain their profit margins. High inflation, driven by the increased tariffs, can negatively impact economic growth in several ways. First, it reduces disposable income by diminishing the purchasing power of money, leaving individuals with less to spend on consumer products. This decline in consumption can, in turn, slow overall economic growth. Additionally, tariffs can create supply chain disruptions. The increased cost of trade may cause companies to seek cheaper alternatives which can cause supply delays and shortages further fueling inflation.
Another significant argument against tariff use is that it can cause heightened tensions between countries and trade retaliation. When the United States implements a tariff on another country, it opens the door for the other country to impose tariffs on US products. This can severely hurt United States producers, as this retaliation would make their products more expensive thereby decreasing their profits. Increased tensions between countries can also lead to market volatility and decreased investment between countries.
Tariff Truth: Good, the bad and the ugly
Overall, the use of tariffs is a polarizing topic, the policy creates both American winners and losers and evokes strong emotional reactions from the related parties. Tariffs are not inherently negative if they are used minimally in a strategic way. They can benefit the United States if used correctly on certain target industries. However, if used broadly across many industries and countries, it can cause detrimental effects to the American economy and the global economy.
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