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Of Course U.S. Government-Imposed Tariffs Are Taxes on Americans

Here’s a letter to National Review:


Andrew Stuttaford rightly criticizes clueless RNC spokeswoman Anna Kelly who denies that protective tariffs are taxes on consumers (“Are Tariffs a Tax on Americans?” June 18). But Mr. Stuttaford overlooks the most obvious reason why Ms. Kelly is mistaken: Tariffs protect domestic producers from foreign competition only if and insofar as they raise the prices that consumers pay for imports, for only by raising imports’ prices are consumers incited to purchase more domestically produced goods. It’s not merely that, as Mr. Stuttaford writes, “the importer may, if its competitive position allows, pass on that cost to its customer.” A protective tariff serves its purpose only if the importer passes on at least part of that cost to its customer. The very purpose of tariffs is to increase demand for domestically produced goods by raising the prices that consumers pay for imports. A tariff that doesn’t raise prices paid by consumers doesn’t protect domestic producers.

Economic pedants will note that, under what economists call “constant returns to scale,” it’s possible that in the long run prices paid by consumers for protected goods will be no higher than before the tariffs were imposed. The reason is that the tariffs attract into protected industries enough new resources to bring the prices of goods sold by protected industries back down to pre-tariff levels. But these resources must be drawn away from other domestic industries, causing prices that consumers pay for non-protected goods and services to rise.

There’s no escaping the conclusion that protective tariffs imposed by the U.S. government are taxes on American consumers. Politicians and their spokespeople who cannot or will not grasp this reality are unfit to fashion economic policy.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030