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The Trump administration has imposed new tariffs on steel, aluminum, washing machines, and thousands of other products that American businesses and consumers buy from China. Tariffs have been imposed as the result of various trade investigations that concluded injury to U.S. industries, national security threats, and unfair trade practices. These tariffs will increase the tax burden on Americans, falling hardest on lower and middle-income households, and reduce economic output, employment, and wages.
Tariffs are a type of excise tax that is levied on goods produced abroad at the time of import. They are intended to increase consumption of goods manufactured at home by increasing the price of foreign-produced goods.
Though tariffs may afford some short-term protection for domestic industries by shielding them from foreign competitors, they do so at the expense of others in the economy, including consumers and other industries, resulting in less economic output on net.
A recently published study which reviews tariff changes across 151 countries from 1963 to 2014 provides modern-day evidence of the negative effects of tariffs. The research finds that tariff increases lead to less output and productivity and more unemployment and inequality. These negative effects are magnified when tariffs are increased during expansions and in advanced economies.
Ultimately, tariffs result in net decreases in productivity, output, and income; consumers lose more than producers gain, resulting in a net loss to the economy.
- The Trump administration has imposed $42 billion worth of new taxes on Americans by levying tariffs on thousands of products.
- Outstanding threats to impose further tariffs mean Americans could see additional tax increases up to $129 billion.
- Tariffs are regressive, placing a higher burden on lower-income households.
- The $42 billion of tariffs imposed so far are estimated to reduce after-tax incomes by 0.30 percent on average. This negative effect is more pronounced for households in the middle and lowest quintiles, reducing their after-tax incomes by 0.33 percent.
- For taxpayers in the middle quintile, this represents a decrease of $146 in after-tax income.
- If threatened tariffs are all imposed, after-tax income for households in the bottom and middle quintiles would fall by an additional 1.04 percent, higher than the average decrease of 0.92 percent.
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