Tariff Myths, Debunked

By Scott Lincicome. Excerpts:

"It’s similarly misguided to claim, as some misguided souls recently have, that protective tariffs don’t increase U.S. prices. The basic logic and economics here are again straightforward: If tariffs didn’t increase import prices, then they wouldn’t protect U.S. companies from that foreign competition; and if those U.S. companies were already selling at or below the import price, then they wouldn’t need a tariff to change American importers’ and consumers’ behavior. (Nobody—not even me—is “buying foreign” just for the fun of it.) By forcing importing firms to either pay a tariff or switch to more expensive U.S.-made goods, protective tariffs will push the domestic market prices of those goods higher than they’d otherwise be. If they didn’t, then they wouldn’t protect anything.

Furthermore, high or unpredictable tariffs can reduce potential supply and give domestic producers more market power over U.S. consumers who, thanks to the tariff, have fewer alternatives, and this can and often does increase the prices of the American-made goods even higher than they were before the tariff. These kinds of price-boosting effects are precisely why U.S. manufacturers—like this guy—lobby for tariff protection. And we see them all the time in the economic data.

For example, Obama-era tariffs on washing machines, a recent paper showed, didn’t raise U.S. prices because they weren’t protective. (Korean companies simply moved to other countries to avoid the tariffs.) Trump-era tariffs on those same goods, by contrast, were global and did significantly raise U.S. prices of both washers and dryers by about $90 each.

…..

The empirical literature from dozens of countries over many decades again confirms the theory: In case after case after case—and regardless of the model used—economists have found that tariffs reduce national economic output and make a nation worse off on net, while tariff liberalization generally does the opposite. (One of the more popular trade models, if anything, understates the output gains from trade liberalization.)"