Do High Tariffs Help or Hurt?


No one can ever really accurately predict the effects of tariffs and/or duties imposed on imports with 100% certainty.

In most instance the effects have to be viewed through a contextual lens but there are general patterns. You can assume that high tariffs will raise a government’s overall revenue stream (at least in the first fiscal year). High tariffs or duties on selected goods may stimulate domestic trade and economies by enabling local businesses and industries to compete with foreign price disparities. Increases in shipping costs to import certain goods translates to higher costs to consumer to offset the rising prices (rarely does a company eat the cost of increased duties or tariffs). When tariffs and duties get out of hand, trade wars ensue that undoubtedly hurt both or all parties involved. Products that would normally be in high supply (such as, machine parts or raw materials) can come to a screeching halt leaving those sectors in debilitating short supplies. Based on past global behaviors, these are just a few examples of the general consensus among analysts, but the past isn’t always indicative of the future. Even if a trend has appeared within the past 50-100 years (sometimes even longer), it doesn’t mean that it will hold true in the current environment.

Focusing on domestic industries is great but almost no country can act as a vacuum in the global economy and solely focus on itself domestically.

Although a focus on domestic infrastructure and domestic production does soften the blow when high tariffs are imposed on a country. Furthermore, issues like global supply chains problems are lessened when a country can produce and transport goods within its borders more efficiently and economically than foreign imports can with or without tariffs imposed by either party. If that level of growth domestically can occur, then naturally and increase in exports will occur; granted goods can be traded freely or relatively close to being traded freely.

History has shown that isolating economies can actually slow growth domestically as well as globally but it depends on the route of isolation. As mentioned earlier, building a country’s infrastructure and its ability to produce and transport goods domestically can pay off globally. China is a prime example of that; for years they had focused on such methods and now they are a global trading power house, and the recent trade war between the U.S. and China has had little impact on China’s economy while hurting the U.S. economy. There are talks of loosening tariffs on Chinese imports because of this in the hopes of slowing down inflation and a return to the growth seen before the trade war between the two countries.

Recently we have seen a dramatic increase in energy costs in the U.S., more specifically rising oil prices.

Although current oil prices have been directly effected by sanctions imposed on Russia, high tariffs do not help the situation. They most definitely exacerbate the situation and has undoubtedly hurt our shipping industry. The higher cost of fuel directly effects our trucks, boats, trains, and plains; essentially slowing the growth of the economy.

Whatever the case may be it is unclear how tariffs and duties will effect all facets of global trade. Like anything, there are pros and cons to tariffs that may not even be felt immediately. Tariffs can be implemented for many different reasons and the context can change at a rapid rate. So ultimately, we just have to wait and see, and make the best decisions based on the information that is given.