Oren Cass, chief economist at American Compass, tweeted (or is it “Xed?”):
Fun quirk of the free-trade talking points is that tariffs are counterproductive and you pay them yourself…but also don’t impose them because you’ll face retaliatory tariffs that you’ll have to pay.
Cass seems to think that there’s a contradiction. There isn’t.
A tariff is a tax: it’s a tax on imports. We have a well-developed framework for analyzing who pays a tax. The burden is split between buyer and seller according to relative elasticities of demand and supply.
Say the U.S. government imposes a tariff on aluminum. If the elasticity of demand for imported aluminum is high and if the elasticity of supply is low, then it’s true that most of the burden falls on the exporters rather than the U.S. consumers. Most of the burden, not all of the burden.
If the elasticity of demand for imported aluminum is low and the elasticity of supply is high, then most of the burden is borne by the U.S. consumers.
If someone says that U.S. consumers bear all of the burden, then that someone is almost certain to be wrong. If someone says that U.S. consumers bear none of the burden, that someone is also almost certain to be wrong.
Now consider retaliatory tariffs. The same reasoning applies. Let’s say that country X retaliates against U.S. tariffs on its exports by imposing tariffs on some goods from the United States. Then the split of the burden depends, yet again, on relative elasticities of supply and demand.
So there is no contradiction, as Cass seems to suggest, in saying that U.S. tariffs on imports will make U.S. consumers worse off and saying that foreign tariffs on U.S. exports will make U.S. producers worse off. For the typical case, both claims are virtually certain to be true.
I never saw an economics student transfer into the physics department.
If tariffs are imposed on foreign imports, our US exports are reduced. Foreign exporters have less money to purchase US goods and services because of tariffs. Had there been no tariff, they would have bought more USD to purchase US goods and services.