Ben Franklin once said that “in this world, nothing is certain except death and taxes.” And, although I hate both, it seems like he described the human condition pretty accurately.
To that end, we’ve received a new slate of taxes to add to the ones we already have: tariffs. And this time around, President Donald Trump isn’t afraid to use them.
Far from the “gunboat diplomacy” tariffs of his first four years, Trump’s second term has so far been defined by using tariffs not only as a foreign policy tactic but also a means of influencing economic policy.
The jury is still out on the economic effects of Trump’s present and future tariffs. However, my goal today isn’t to litigate his policies; instead, I want to explain what tariffs are supposed to be, what they do and why someone might want to eliminate or add new ones.
What are tariffs, and what do they do?
To put it simply, tariffs are taxes levied on imported or exported goods of a certain kind, usually those from a certain country or set of nations.
That’s a pretty simple definition, so I think it’s important to ask the secondary question instead: What do tariffs do?
Let’s use a hypothetical. Suppose the United States levies a 100% tariff on all Chinese cell phone imports. Huawei — a Chinese company — produces their cheapest phone for $200, while Apple and Google — American companies — produce their cheapest phones for $350 each. For the sake of our example, let’s assume these are the only companies interested in selling cell phones in the United States.
Prior to the tariff, Huawei made the vast majority of phone sales in the United States to budget consumers, since anyone could get a Huawei phone for only $200. Although Apple and Google made some sales, they didn’t have as strong of a market. People were mostly happy with buying phones for less money because the final products weren’t too different, quality-wise.
Unfortunately for Huawei, it’s time to return to the post-tariff world. How will the 100% tariffs affect our scenario?
Huawei has to pay a 100% tariff for each of its $200 phones, raising the price of each phone to $400. Apple and Google don’t have to pay any tariffs on their phones since they’re American companies; the price of their phones remains $350. Budget consumers, seeing that the lowest-priced phone available is now $350, turn the majority of their purchases to Apple and Google.
Huawei still sells some phones to these consumers due to brand loyalty and such, but — ultimately — most people would just prefer the cheaper product.
It should be pretty evident what the tariff’s effect is here: Chinese companies lose, since less consumers purchase Chinese cell phones. American companies win because consumer purchases increase. And, unfortunately, consumers lose, as the lowest-priced phone now costs $350, not $200. My example is obviously a massive oversimplification — international supply chains make import tariffs much more complicated — but that’s the basic sketch of how it works.
So the question comes down to this: Will the gains to companies offset consumer losses? If the answer is yes, tariffs are economically beneficial. If the answer is no, then tariffs are not economically beneficial.
Why support tariffs, and why oppose them?
First, there’s the economic argument that I mentioned earlier: Do the gains from tariffs, such as increased revenue for American companies, job growth and so on, ultimately outweigh the losses that consumers take as a result of having to pay higher prices?
If yes, then that might be a reason to support tariffs. If not, then obviously that’s going to be a problem.
Another reason to consider implementing tariffs is national security. If the U.S. government outsourced military aircraft construction to China, that would present a national security risk. By imposing tariffs on Chinese aircrafts, the U.S. could shore up manufacturing for American-based aircraft manufacturers. On the other hand, implementing tariffs often does little to help domestic industries that aren’t already well established. If, for example, Trump imposed tariffs on Taiwanese semiconductor imports, it would take several years for new semiconductor plants to pop up.
There are several factors to consider here. But there’s also a misconception I want to clear up. In recent times, members of the Trump administration — including the president himself — have argued that the government should impose tariffs because American consumers “subsidize” other countries through multi-billion dollar trade deficits. This makes it seem as if these countries are somehow scamming American consumers for more than their goods are worth.
However, a “trade deficit” is just an economic situation where imports exceed exports. So if U.S. consumers have a $100 billion annual trade deficit with Canada, that just means those consumers imported $100 billion worth of goods from Canada more than what was exported. In that sense, you might have a few-thousand-dollar “trade deficit” with Amazon or Walmart, since you’ve bought (imported) more than you’ve sold (exported) to those companies. That doesn’t mean anyone’s being scammed, only that money is being exchanged for goods and services.
Although much remains uncertain, this administration will, at the least, give us one thing: A true modern test of tariff policy.
Kaleb Blizzard is a philosophy sophomore and opinion writer for The Battalion.
