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Who gains and who loses from a tariff?
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Economically speaking, producers in a given country gain when their country imposes tariffs. Consumers in that country lose.
A tariff is a tax on imported goods. When a tariff is imposed, the price of those goods goes up because a higher tax must be paid in order to get them into the country. Economic theory tells us that an increase in the price of imported goods will lead to an increase in the demand for domestic goods. An increase in the price of a good always leads (all other things being equal) to an increase in demand for goods that compete with that good. Since domestic goods compete with foreign goods of the same type, a tariff increases demand for the domestic goods. This helps the firms that produce these goods and it helps their workers.
By contrast, a tariff hurts consumers. It does so because it raises prices on the things that they must buy. With a tariff in place, imported goods cost more. This decreases pressure on domestic producers to lower their prices. In both ways, consumers lose because prices are higher.
Thus, consumers lose but domestic producers gain when a tariff is imposed.
Posted by pohnpei397 on May 8, 2013 at 2:44 PM (Answer #1)
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