What Is a Tariff? – BW

A tariff is essentially a tax imposed on imported goods as they enter a country. This tax can either be a fixed amount or a percentage of the price of the goods. Governments often use tariffs to either generate revenue or protect domestic industries. Despite the intended purpose of tariffs, economists suggest that a significant portion of the cost is ultimately borne by domestic producers and consumers in the form of higher prices.

Traditionally, decisions regarding taxes are within the purview of Congress. However, over the years, various laws dating back to 1934 have granted substantial tariff-setting authority to the president and their cabinet.

For instance, when President Donald Trump imposed tariffs on steel and aluminum imports in 2018, he cited a provision of the Trade Expansion Act of 1962. This provision empowers the president to establish tariffs on imports that the secretary of commerce deems a national security threat.

In a similar vein, President Joe Biden utilized a section of the Trade Act of 1974 in May to authorize the Office of the United States Trade Representative to raise tariffs on Chinese imports.

In recent years, lawmakers have introduced several bills aimed at curtailing the president’s unilateral tariff-setting power. For example, Senator Rand Paul (R-KY) proposed the No Taxation Without Representation Act, which mandates Congressional approval for any tariff implementations.

Countries like the United States often levy tariffs to enhance federal revenue, influence the behavior of trade partners, or safeguard domestic industries facing stiff competition from abroad.

Historically, import tariffs served as a primary income source for the U.S. government, as noted by the Cato Institute. However, this trend shifted with the introduction of the first income tax during the Civil War in 1862.

According to researchers at the Peterson Institute for International Economics, tariffs ceased to be a significant component of the U.S. budget post-1914.

To serve as a reliable revenue stream, tariffs must be maintained at reasonable levels to encourage ongoing trade. Excessive or widespread tariffs can disrupt the market, favoring untaxed sources or discouraging imports altogether.

This aspect may conflict with the broader objectives of tariffs.

Recent U.S. tariffs frequently serve as a diplomatic tool to shape the actions of trade partners. By imposing taxes on specific goods, particularly those from particular regions, the U.S. aims to redirect market preferences away from those sources.

In addition to penalizing trade partners, tariffs can bolster local industries by stimulating demand for goods produced domestically. This strategy aims to shield domestic producers from cheaper foreign alternatives, fostering employment opportunities and innovation within U.S. companies.

Promoting the domestic manufacture of specific goods is also viewed as serving national security interests.

Various imported goods are subject to tariffs.

In 2018, Trump imposed tariffs ranging from 10% to 50% on a wide array of products, predominantly from China. These included solar panels, washing machines, steel, and aluminum.

In his current presidential campaign, Trump has proposed a 10% tariff on all imports, in addition to existing tariffs.

Biden has expanded some of Trump’s tariffs, elevating tariffs on various goods from China in May, including steel, aluminum, semiconductors, electric vehicles, batteries, medical equipment, and solar cells. Post-revision, these tariffs range from 25% to 100%.