As do the tariffs many foreign countries have historically imposed on us. We paid the increased price of their tariffs which benefitted their countries, not ours. The difference being we now have a “level playing field” which incentivizes US manufacturing, industry and jobs and our country benefits. It’s not an “all about me” world.
Not exactly. No foreign country has ever imposed a tariff on US consumers or producers. They impose tariffs on their own domestic importers.
A tariff is paid by the importer, not the exporter. If Ford exports an F-150 (assembled in Dearborn MI) to India for $30,000 and India imposes a 50% tariff, Ford still receives its $30,000. The Indian buyer pays the tariff and ends up paying $45,000 ($30,000 to Ford, $15,000 to the Indian treasury). Ford doesn't pay the tariff; the Indian consumer does.
If India chooses to make imported pickup trucks more expensive, that's a policy decision made by India and paid for by Indian consumers.
A tariff is essentially a tax that a country imposes on its own consumers and businesses when they purchase imported goods.
Historically, tariffs were intended to protect domestic industries. That approach made sense when most goods were produced locally and international trade was limited, shipping was costly and production timelines were measured in years, not months or weeks. However, globalization and low cost maritime shipping have changed the economics. Production has shifted to regions with natural advantages such as lower labour costs, cheaper energy, access to raw materials, or specialized expertise.
Take bananas as an example. Canada could theoretically grow bananas in heated greenhouses, but the cost would be far higher than importing them from Costa Rica. If imported bananas cost $0.75/lb and Canada imposed a $1.00/lb tariff, the imported bananas would now cost Canadian consumers $1.75/lb. The tariff doesn't make bananas cheaper; it simply makes them more expensive for consumers. It would cost around $3-$5 / lb to grow bananas in Canada. The tariff would not incentivise domestic producing as Canada lacks a comparative advantage to Costa Rica in this agriculture category. If Canada wanted bananas grown domestically, they would have to impose a $3-$5 tariff, increasing the cost to Canadian consumers by a factor of 6. Costa Rica would just sell their bananas elsewhere and there would be a lot less banana daiquiries and banana bread consumed in Canada!
The same principle applies to manufacturing.
Canada has abundant hydroelectric power. Producing aluminum requires roughly 6,500 kWh of electricity per 1,000 pounds. At $0.10/kWh, that's about $650 in electricity costs. In a region where electricity costs $0.30/kWh, the same aluminum would require about $1,950 in electricity. The power cost alone is three times higher.
Where would Ford prefer to buy aluminum?
If a government wanted to protect the higher-cost producer, it could impose a tariff on imported aluminum. However, that additional cost doesn't disappear—it gets passed through the supply chain and ultimately shows up in the price paid by consumers.
The one circumstance where tariffs can be effective is when a country could produce a product competitively, but the production capacity does not yet exist. In that case, tariffs can encourage investment and allow a domestic industry time to develop.
This requires several components:
- comparable labour costs
- the supporting industries are available
- the know-how exists or can be acquired
- the productivity is the same or higher
Auto labour costs are around $50-70 / hr in the US. In Mexico they are around $15 / hr. This will go up in Mexico over time, but for now, it's much cheaper to make cars / car parts in Mexico then in he US. Why wouldn't a US consumer want a much less expensive Mexican car? (assuming they provide the same level of safety and quality). Assembly of the vehicle is just a small part of the total cost. But if making the engine, wheels, tires, battery, etc... all cost significantly less in Mexico, no amount of Tariff will ever make a comparable vehicle the same price to manufacture in the US. The tariff is costing consumers more in the short and medium term and will ultimately just delay the inevitable. It would be more economically advantageous for the government to adopt economic policies to diversify the economy to areas where it has an advantage (or develop the advantage through worker education, R&D, etc...).
China's automotive industry is a good example. In the 1980s, China imported most passenger vehicles. Through tariffs and other industrial policies, it encouraged domestic production. Building that industry took decades, but today China is the world's largest vehicle producer and can compete on cost and scale.
The key point is that tariffs work only if domestic production can eventually become competitive. If domestic production remains structurally more expensive, tariffs simply result in higher prices for consumers.
Globalization has shifted industries toward regions with economic advantages (comparative advantages). Canada once produced far more textiles than it does today. Textile production largely moved elsewhere because it became more economical to manufacture in lower-cost regions. In exchange, Canada exports products where it has comparative advantages, such as energy, minerals, aluminum, forestry products, and agricultural goods. Switzerland could impose a 100% tariff on imported grains, but it will never be able to produce it to match demand, so the tariff policy would fail and just cause bread to cost more in Switzerland.
It's also worth remembering that modern Western economies are predominantly service-based. In many developed countries, roughly 70–80% of GDP comes from services rather than manufactured goods. There is no tariff on most services. When I pay for ChatGPT, streaming services, cloud computing, engineering services, or software subscriptions, tariffs generally don't enter the equation.
As a result, broad tariffs often do little to strengthen the largest part of a modern economy while increasing costs for consumers and businesses for essential goods (food, shelter, clothing). This hurts mostly low income earners who spend most or all their income on physiological needs. In many cases,
they reduce purchasing power and overall quality of life. If someone spends 100 pct of their after tax income on food, transportation, rent and clothes, and then food and fuel goes up by 20pct due to tarriffs, how are they supposed to make ends meet?
Tariffs can be useful in specific circumstances where they help establish a competitive domestic industry (and it's possible to be domestically competitive with foreign producers). Outside of those situations, they are just another cost that ultimately gets passed on to consumers. Usually, a combination of domestic incentives and tariffs are required to effect change, tariffs alone will not likely result in domestic investment. Tariffs alone, without a domestic production advantage and other subsidies only cost consumers more for essential goods. It's a tax. This is high school economics 101.
