I asked my LinkedIn audience to agree or not, with the following statement. Here is the result.
Correct answer
Tariffs are taxes paid by importers on imported goods. Importers are local businesses so these taxes are paid by local companies. When President-elect Trump says that tariffs are paid by exporters, he is simply wrong. If you think about it, how would America (or South Africa) get another country to pay our local taxes? The jurisdiction of tax authorities ends at their borders.
The objective of tariffs is to raise the price of imported goods, allowing local producers to sell their products at elevated prices without being undercut by imports. If there is only one local producer, it will be much easier for them to maintain an import parity price because imports are their only competition and when their price rises, the local producer can raise theirs too. If there many local producers, this will be harder to do, but it’s still likely the prices will rise. If the local producers don’t raise their prices, they run the risk of shortages because the demand for imports will shift to them and they may not have the capacity to supply it all.
All of this means that in most cases, tariffs raise consumer prices. The degree they will rise by will be different for each product, but tariffs almost always raise prices. Local producers benefit because of the greater rent they earn by being able to push up prices and this extra money they secure, is financed by the consumer.
Tariffs are consumption taxes, just like VAT, but unlike VAT, they are not apparent to the shopper. It is clearly stated on the packaging in South Africa that when you buy something it (almost always) includes a 15% tax, but no one know when they buy a bag of frozen chicken portions, that this contains a 62% tariff.
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