How would tariffs on foreign goods strengthen a country’s economy? Conversely, how does another country imposing tariffs cost the target country money?

Question

I read an example recently where the Obama administration imposed tariffs on tires from China and in response China imposed tariffs on chicken from the U.S. Both were said to have ‘cost’ the U.S. (in tire prices passed to consumers and … it wasn’t clear). How does this work?

In: Economics

Answer 1

Tariffs don’t really strengthen a countries economy directly – but rather puts more money into the pockets of that producer of that domestic good by raising prices for everyone else.

For example, if there were a tariff on foreign beef, all beef would get more expensive and people who produce beef domestically would benefit from people paying higher prices for their beef.

Longer-term, an economy may benefit if you build up beef production expertise so it could get really efficient, etc. However, there may be better, more efficient ways to accomplish that other than what amounts to taxing consumers for beef.

For foreign beef producers, tariffs drop the demand for your beef since it’s more expensive for a consumer which leads to less sales and profits.