Tariffs are Sanctions Against Consumers

Who do tariffs punish? Many people think they punish unscrupulous, shifty foreign manufacturers who aren’t playing fair and “dumping” their shoddy wares on American markets at prices below American producers’ costs, but that’s not true. Tariffs are sanctions and penalties imposed on American consumers for not paying enough.

Governments regularly impose sanctions on other governments for various abuses of human rights and international treaties, or other similarly bad behavior. These sanctions can be a refusal to allow a country’s citizens to trade with another country’s citizens or an outright trade embargo. The basic idea is that punishing a country with trade sanctions will get it to change its behavior. Or, perhaps, by punishing a country’s citizens, we can inspire them to rise up and throw off the chains of their oppressors. 

Sanctions have a checkered history and a less-than-inspiring track record. Protectionism is a classic example of a policy that does the opposite of what it is supposed to do. It increases American employment in the protected industries, but the workers’ additional earnings are transferred dollar for dollar from consumers. We could use the land, capital, labor, and other resources more efficiently to make something else.

According to a Daily Mail poll asking about Donald Trump’s plan for 10% tariffs on all imports, “24 percent of likely voters strongly support the policy proposal while another 30 percent tend to support it.” Protectionism is bipartisan: a few weeks ago, Reuters reported that Senate Democrats from manufacturing states were pushing for tariffs on Chinese electric vehicles because “Allowing heavily subsidized Chinese vehicles to enter the U.S. marketplace would endanger American automotive manufacturing.”

It’s not hard to show that any gains to domestic producers come out of domestic consumers’ pockets. It’s also fairly easy to show that the reduction in gains from trade for consumers is greater than the increase in gains from trade going to producers and the tax revenue the government enjoys. These videos from Marginal Revolution University walk you through the graphs.

If you scratch an economist, you will find someone more enthusiastic about free international trade than the average person and the median voter. Indeed, 1100+ economists signed a 2018 open letter from the National Taxpayers Union urging the government to abandon protectionism. Unfortunately, the median voter embraces populist demagoguery and votes enthusiastically for tariffs and other restrictions on international trade. The results do not Make America Great Again. They just make us poorer. 

Tariffs on foreign goods are “sanctions” on American consumers. Their crime? Not wanting to pay as much as domestic producers want.