President Donald Trump has tweeted on more than one occasion that tariff money is coming into the USA. This is correct. But who pays those tariffs? Let's start with a basic definition.
What is a tariff?
A tariff is a tax paid on a particular import or export. Tariffs are paid by the importers on products they are importing from around the world. So, in the case of tariffs levied by the U.S. on China, those tariffs are paid for by importers who import products from China.
Wait, China doesn't pay the tariffs? President Trump levied the tariffs on China.
That's not how tariffs work. Tariffs are a tax on imports. They are paid by U.S. firms to U.S. customs for goods imported into the U.S. Importers often pass the cost of tariffs along to consumers by raising prices. In fact, footwear companies urged Trump to remove footwear from a tariff list, warning the extra 25% tariff would cost consumers an extra $7 billion a year.
Higher prices for consumers? Why put a tariff in place?
The goal is to increase the price of goods or services from another country or exert political leverage over another country. Tariffs are used to protect domestic industries. Higher consumer prices are a side effect.
Who wins with tariffs?
The government sees more revenue as imports come in. Domestic industries face less foreign competition.
So tariffs are good for the economy?
In the short run, higher prices can reduce consumption, some businesses will benefit and the government will see an increase in tariff revenue. But in the long term, business efficiency may decline from a lack of competition and product substitutes may emerge to get around the tariffs. Also, increased prices may increase demand for public services as disposable income declines.