Investigating the Effects of Tariffs on the Global Economy

By: Yujin Lee ‘28

Recently, President Trump has imposed global tariffs on several countries. Professional economists have been investigating the global effects of tariffs on the economy and trade market. 

Tariffs have pros and cons. Some economists claim that tariffs are beneficial, while others assert the effects they can cause on consumers and the economy are detrimental. This article will investigate the pros and cons of tariffs globally.

For people who do not know the concept of tariffs, tariffs are taxes imposed by a government on goods and services imported from other countries. Simply put, tariffs add extra cost to the goods that are from foreign countries. 

For example, let’s imagine there is a store that sells fruits and vegetables. They buy 1500 apples for $1500 from French farmers, and another 1500 apples for $1500 from farmers in the United States; however, France is a foreign country. So, the fruit store that bought apples from France has to pay 34% percent of the price of the apples to the United States government.

Therefore, the store pays 34% percent of $1500, which is $510 to the U.S. government, since they have to pay for buying products from foreign countries. Because of this, the store lost $510. Now, they have to make more money. They decide to increase the price on the French apples. French apples used to be one dollar, but now, their price has risen to $1.10. As the price of French apples increased, fewer people started to buy French apples, because apples from the United States are still one dollar. United States apples are not foreign products, so stores did not have to pay for tariffs when they bought apples from U.S. farmers. 

Why would governments impose tariffs? Increasing prices might look like tariffs only have negative effects, but utilizing tariffs can bring various benefits for the United States.

For instance, let’s say I am a U.S. farmer. I sell my apples from my farm to the same fruit store mentioned above; however, many people used to buy French apples. But, due to tariffs, French apples are now more expensive than my apples. People start buying my apples because they are cheaper.

Just like this example, increasing tariffs can help domestic producers to make more profit. Furthermore, the U.S. government can increase its revenue. Every time a foreign exporter exports their products to the U.S., the government gets to earn more money through tariffs they get from importers who buy from the foreign country. 

On the contrary, unlike the U.S., many other countries face damaging outcomes of tariffs, because of the impact it causes to consumers and the economy. 

One of the most immediate impacts of tariffs is a rise in consumer prices. In many cases, the economic burden of increased tariffs are ultimately borne by US consumers. Imported goods in the United States range all the way from electronics to everyday groceries. An increase in prices can contribute to inflationary pressure, forcing central banks to raise interest rates.

These effects will potentially slow the economic growth and increase borrowing costs of businesses and consumers and interest rates, resulting in one of the biggest cons of imposing tariffs.