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
The way it can strengthen a country’s economy is by making sure that it is financially feasible to domestically manufacture the goods in question. For example if a US manufacturer can make solar panels for $1 per watt, but China can manufacture them for $.50 per watt, there would need to be an import tariff of 100% (an extra $.50 per watt) in order to keep the US manufacturer afloat, otherwise there would be no financial reason to buy from the US manufacturer. If the US manufacturer can sell solar panels, that means there will be more jobs for these domestics manufacturers, but the buyers of solar panels in the US have to pay the $1 per watt instead of $.50 per watt, so solar energy is more expensive for the consumer.
In order to keep these important industries afloat (which generally, people do want), you can either do government subsidies to reduce the consumer cost (e.g. either tax rebates for solar panels, or providing grants to build manufacturing plants, thus lowering cost to produce the solar panels directly), or you can do tariffs to make the competition less favorable to the consumer. People generally don’t like government subsidies because they think the money gets wasted/pretty much just taken by corporate execs, so the tariff option is easier because it sounds “free” even though the consumer is still paying the same money (either to the government to afford the subsidies, or to the government to pay for the import tariffs).
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