Tariffs Are Taxes

President Trump has threatened to slap significant and escalating tariffs on imports from Mexico as a way of pressuring the Mexican government to “do more” to stem the flow of migrants into the United States. These would be in addition to existing tariffs that have been applied against certain imports from Mexico, Canada, and of course China.

In other words, President Trump is threatening to raise taxes on Americans. Again.

That’s because tariffs are taxes, and they are paid by Americans, not by foreigners.

When the United States levies a tariff on something, the US importer pays the tariff, not the foreign exporter. A tariff is a border tax paid by the buyer, not the seller.

The specific mechanism is that the US importer must pay the tariff to US Customs before the goods are released to the importer at the border. So China doesn’t pay the “China tariffs,” and Mexico won’t pay the “Mexico tariffs.” Americans will.

Tariffs are taxes. Income taxes are taxes on Americans’ incomes, sales taxes are taxes on Americans’ purchases, and tariffs are hidden taxes on Americans’ purchases of imported products.

So, when you buy a foreign-made product, or even an American-made product with foreign-sourced components, you are paying the tariff embedded in the price of the product, just as you pay the business’s OTHER taxes which are also embedded in the price of the product.

The Tax Foundation has modeled the impact of the proposed and enacted tariffs, and it finds that if all the threatened tariffs were enacted, they would entirely eliminate the benefit of the 2017 tax cut (Tax Cuts & Jobs Act of 2017) for low- and middle- income Americans. And if you’re in the bottom 20 percent of taxpayers, your after-tax income will actually fall by 1.1 percent.

So while the right hand of tax cuts boosted the economy and raised incomes for working Americans, the left hand of tariffs threatens to undo many of those gains.

Conservative and free-market policy analysts have for decades championed tax cuts and fought off tax increases precisely because of how taxes affect the economy. There is no reason to think that tax increases in the form of tariffs are somehow exempt from harming the economy.

Yes, defenders of the tariffs would argue that the higher taxes on Americans are worth it because of what they are intended to accomplish. But don’t tax-raisers ALWAYS argue that their proposed tax increase is worth it because of what it would accomplish?

There is no doubt that tariffs are causing economic harm now, and that higher tariffs will cause more harm. The question is: Aren’t there other ways to pressure Mexico to cooperate in cutting down on illegal immigration that don’t harm working Americans? And wouldn’t those be better choices?