Some quick, Econ 101 style analysis of tariffs. I'm sure this would get me laughed out of an academic seminar, but it might be helpful to think through the basics, step by step.
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Direct effect of tariffs on markets where we are currently net importers, (before retaliation)
- Prices rise because it becomes more expensive to import cheaper goods from overseas
- Domestic production expands because domestic producers face less international competition
- The expansion of domestic production does not offset the loss of imports, since domestic producers are less efficient than international ones (which is why we imported in the first place)
- Thus, overall consumption falls
- Domestic producers benefit, domestic consumers hurt
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Effect of retaliatory tariffs on markets where we are currently net importers
- Input costs rise because the entire supply chain will get more expensive (I'm assuming that we import much of the intermediate goods necessary for production--a good assumption overall)
- Higher input costs translate to higher prices and reduced equilibrium production and consumption
- Domestic producers and domestic consumers are both hurt by this
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Effect of retaliatory tariffs on markets where we are currently net exporters
- International demand falls because of the retaliatory tariffs
- Input costs rise because supply chain gets more expensive
- Demand falling has downward price pressure; input costs rising has upward price pressure
- Domestic production and consumption will both fall; effect on prices is ambiguous
- Bad for domestic producers; could be good for domestic consumers if results in lower domestic prices (e.g. energy prices could lower if less of our energy is exported)
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If coupled with reduction in taxes
- Reduction in taxes will increase both production and consumption
- Consumers will face lower after-tax prices and producers will receive higher after-tax revenue
- Good for both domestic consumers and domestic producers
So, what will the net effect be?
Now, start throwing the tomatoes