WASHINGTON, July 25 — The tariff, that most venerable of trade weapons, is having a moment once again under the Trump administration. On paper it is simple: a duty imposed by a national government on imported goods, paid by the importer. Under the hood, the technical reality is that tariffs can be fixed — a constant sum per unit or a flat percentage — or variable, shifting with the price of the good.
Either way, the mechanism is designed to raise the price of foreign products in the domestic market, discouraging consumption and prompting citizens to buy local. Supporters believe this stimulates the economy and helps reduce the trade deficit.
As ever, the detail that matters is that the economic burden does not stop at the border. The stated purposes are many: protecting infant industries, enabling import substitution industrialisation, correcting artificially low prices caused by dumping, export subsidies, or currency manipulation. There is also the straightforward revenue motive — import duties fill government coffers.
Export taxes, though less common, may also be levied. But the core logic of a protective tariff is to shield domestic producers from foreign competition, reducing pressure on local firms and preserving jobs in import-competing sectors.
The American economist Milton Friedman, never one to miss a wry point, put it memorably: “We call a tariff a protective measure. It does protect… It protects the consumer against low prices.”
The economic consensus — and why it matters
If you ask almost any economist, the answer is clear. There is near-unanimous consensus among the profession that tariffs are self-defeating and negatively affect economic growth and welfare. Free trade, by contrast, reduces trade barriers and delivers positive outcomes.
The reasoning is straightforward: tariffs raise prices in the destination country, imposing a hidden tax on consumers and downstream businesses that use imported inputs. Although trade liberalisation can cause short-term dislocation in import-competing sectors, free trade lowers costs for producers and consumers over time.
That consensus does not mean tariffs lack political appeal. The promise of protecting specific industries — steel, aluminium, automobiles, solar panels — resonates in regions that have felt the sting of global competition. But the economic burden of a tariff falls on three parties: the importer, who pays the duty; the exporter, who may lose market access or be forced to cut prices; and the consumer, who ultimately faces higher shelf prices.
It is not a tax on a foreign country; it is a tax on a domestic transaction, collected at the border.
When tariffs backfire
The technical reality is that tariffs intended to protect one sector can damage others. By raising the cost of imported inputs — steel for carmakers, components for electronics manufacturers — a tariff raises production costs across the board. And then come the retaliatory tariffs.
When one country slaps duties on another’s goods, the targeted nation often responds in kind. The result: domestic exporters face disrupted supply chains and higher costs in their overseas markets, precisely the opposite of what the original tariff was supposed to achieve.
The protective wall becomes a boomerang. History is littered with such examples. Tariffs have been used for centuries to foster infant industries and enable import-substitution industrialisation, but the record is mixed at best.
Countries that shield domestic producers from competition often see those producers become inefficient, reliant on protection, and unable to compete when the barriers eventually come down. Meanwhile, the higher prices consumers pay act as a drag on overall economic welfare.
Looking forward
The Trump administration’s current tariff policies sit squarely within this debate. Whether they will succeed in reviving domestic manufacturing or simply raise costs and provoke retaliation is the question markets and trading partners are watching closely. What is clear from the economic evidence — and from Friedman’s dry observation — is that tariffs protect consumers from low prices. That is a protection few consumers asked for.
