Explain Like I'm Five

Tariffs suck for the country implementing the tariff. But before I tell you why they suck, let me tell you the way they are supposed to help.

Here’s the way tariffs are supposed to work according to people that like tariffs (spoiler alert, this thing I’m about to describe is a fantasy and I’ll explain why).

Let’s say people in the US can make widgets for $10 and sell them for $12 and have a viable business. But mean old foreign country can make widgets for $5 and sell them for $7 and have a viable business. The foreign country sells the people of the US widgets for $7, which is great if you live in the US and want to buy a widget but sucks if you live in the US and want to make a widget.

Tariffs are supposed to protect local businesses by making foreign goods less competitive. Let’s say we pass a law putting a $10 tariff on foreign widgets. I used to import widgets from foreign country and pay the manufacturer $5 per widget and sell them to Americans for $7. Now when I import the widget from the foreign country I still pay the manufacturer $5 per widget but now I have to pay the US government a tariff of $10 per widget. Each imported widget now costs me $15 and so I have to sell them for $17 to make a profit. This now means that American made widgets are competitive again, the locally made $12 widget is a great deal compared to the $17 imported one. Great if you are a US widget maker and shitty if you are a US widget buyer.

Now you might notice the people in the US buying widgets, even in the best fantasy scenario, end up getting dicked over. The theory goes that widget making jobs are good though and if we do that enough then everyone will have to pay more for goods but we will have lots of jobs making stuff that pay ok.

Now here’s the part that really, really sucks. Let’s say you are a US widget maker and now you know that your foreign competition can’t make a widget for less than $17. You could sell your widgets for $12 and have a viable business or you could sell them for $16.99 and have a super profitable business. I’ll just gesture broadly at the sea of corporate greed we find ourselves floating in and let you decide which is more likely.

Tariffs induce even local manufacturers to raise prices because it hurts competition. It’s basically a massive transfer of wealth from local consumers to local producers by cutting out the foreign producers and the competitive pressure they exert on the market. This is why basically every economist said “do this and kill the economy”

So why do people want tariffs? Well the promise for your average voter is that the tariffs are going to bring back good solid blue collar jobs. You can go work in a factory and pump out widgets and get a nice middle class paycheck. It’s a nice sales pitch and a lot of people would really want that to be true. I suspect though that the manufacturers will automate most of this work and pocket the profits, again, gestures broadly at the late stage capitalism hellscape all around us.