Trump's Tariffs and Their Consequences
INTRODUCTION AND SUMMARY This is an early analysis of the tariffs on China, Canada and Mexico announced on March 4. Some simple math (20-25% tariffs on $1.5 trillion of imports from China, Mexico and Canada) gives a $300 billion tax on Americans, before any adjustments in behavior by consumers and manufacturing companies. But an analysis by the Tax Foundation, a think tank, indicates that government revenue from these tariffs might be closer to $110 billion. Revenue would be substantially lower if there were "carve-outs" (no tariffs) on cars, oil and naturally gas. Tariffs are basically a tax on inputs and the wholesale prices of imports. The results of a tariff are higher prices and lower unit sales. The cost of a tariff is split between manufacturers and consumers. The split depends on the price elasticity of demand (mostly determined by the kind of product and the closeness of substitutes). Spread out over the whole economy, the announced tariffs probably will hav...