Imagine that you’re a small business owner in the US, assembling gadgets using imported components from all over the world. Microchips from Taiwan, cables and electronics from China, batteries from Germany and finally, packaging materials from Vietnam. Everything is working out well, until suddenly, tariffs rise. Your investments are now pricier, your profit margin shrinks, and you’re stuck asking yourself: “Am I being protected or punished?”
[Arushi is currently pursuing a Master of Business at Monash University, where she serves as Publication Officer at the Economics Student Society of Australia. She is deeply invested in exploring global economic issues and the dynamics of geopolitical relationships. Beyond academia, she co-founded the Rayy Foundation, where she has worked on impact-driven projects ranging from mental health initiatives to poverty alleviation. With a passion for creating meaningful change, Arushi aspires to build a career in consulting, blending data, strategy and purpose to drive sustainable outcomes.]
A Tale of Two Trades: Primary vs. Manufactured Goods
Data from Our World in Data shows that for decades, U.S. tariffs remained relatively stable.From the late 80s to 2017, the tariffs were smooth and steady. Primary products like wheat, fruits, vegetables and minerals, as well as manufactured products like cars and electronics, were all traded almost at parity with domestic equivalents. In other words, foreign goods entered the U.S. market at near-domestic value, keeping prices affordable and sticking to their open market philosophy.
The U.S, it seemed, was living the free-market dream. However, we can observe a sudden spike between 2018 – 2020. The tariffs on Manufactured goods didn’t just rise but skyrocketed up to 80% while the primary goods were relatively low. Possibly because taxing daily essentials would hurt the consumer’s pocket. When tariffs talk, the economy listens, and the consumers feel the pain.
Tariffs: a Boon or a Bane?
Well, it is debatable. On paper, tariffs appear to be the Robin Hood of local businesses, shielding them from cheap foreign competition, giving domestic industries room to innovate, keeping national economies resilient.They can create jobs, nurture infant industries, and even serve as bargaining tools. Here are a few arguments that we can explore.
- Revenue for governments: Tariffs have been one of the oldest forms of taxation,generating funds to support public spending.They have been significant especially in the developing economies. According to the IMF reports Sub-Saharan Africa’s trade taxes contributed as much as 25–30% of total government revenue making it a crucial lifeline (IMF, 2005).
- Protecting Domestic Industries: By making foreign alternatives costlier, tariffs can give local industries an environment to grow and stay competent. For example, emerging steel or textile sectors may survive only because tariffs shield them from cheap overseas dumping.
- Consumer Safety and National Security: Sometimes tariffs are less about economics and more about safeguarding. Restricting imports of sensitive products such as military technology or unsafe food items can protect national interests and consumer health.
Yet for businesses that rely on global supply chains, tariffs can feel like a nightmare. By raising the prices and burning consumer’s pockets, what began as protection soon looks more like punishment.
- Strain on Global Supply Chains: Modern businesses rarely operate in isolation. When tariffs raise input costs, companies either absorb the loss or pass it on to consumers. The 2018-2020 U.S.–China tariff war is a classic example,where American importers faced higher costs, making the households bore an average of $1,277 per year (Business Insider, 2020).
- Retaliation and Trade Wars: Tariffs often spark tit-for-tat responses. What begins as a policy safeguarding national interest can escalate into a trade war, hurting exporters and reducing overall global trade. Farmers in the U.S, for instance, suffered when China imposed retaliatory tariffs on soybeans.
- Consumer Burden: While tariffs aim to protect local producers, the costs trickle down to everyday consumers. Higher prices for cars, electronics, and household goods reduce purchasing power, disproportionately impacting low- and middle-income households.
Think of tariffs like a quick shot of painkillers, while they can provide instant relief by shielding domestic industries and jobs, however in the long run their side effects such as rising consumer costs, reduced competition, and global retaliation often outweigh the benefits.
So, are tariffs a boon or a bane? The truth lies not in absolutes but in context.Their impact depends on how, where and why they are applied. The real challenge lies in the hands of policymakers to strike a balance and transform tariffs into a strategic shield, rather than a blunt weapon that ultimately harms both producers and consumers alike.
Citations:
Business Insider. (2020, January 8). Tariffs will cost the average US household $1,277 this year, CBO says. Markets Insider. https://markets.businessinsider.com/news/stocks/tariffs-cost-average-us-household-year-cbo-lower-income-2020-1-1028857027
Roser, M., Ortiz-Ospina, E., Ritchie, H., & Hasell, J. (2024). Trade and tariffs. Our World in Data. https://ourworldindata.org/trade-and-tariffs
International Monetary Fund. (2005). Dealing with the revenue consequences of trade reform. Retrieved from [IMF website]
