The tariff question

A tariff is a tax on imports, often known as a duty or a trade barrier. The purpose of a tariff is generally to protect domestic production and jobs, though economists say other domestic sectors and customers ultimately pay for tariffs.

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U.S. importers pay the bill for tariffs on goods imported into the U.S., but the question of who ultimately pays the tariff cost is more complicated.

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When President Trump imposed tariffs of 10% on $200 billion worth of Chinese imports in September 2018, Walmart (WMT) and other retailers said the tariffs would result in some combination of higher prices or lower profits.

Bicycles built in China were among the products on Trump's tariff list. A 10% tariff on a bike with a wholesale cost of $60 would add $6 to Walmart's cost of importing that bike.

Walmart could pay $3 of the $6 cost and pass half of it on to customers, whose price would rise by $3. In that case, Walmart profit shrinks and customers are left with a thinner wallet.

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While trade barriers can help an industry receiving protection, their customers can suffer. An oft-cited example is the 2002 imposition of steel tariffs under President George W. Bush. Studies generally showed that the steel tariffs boosted U.S. steel employment but led to a net loss of jobs when including job losses by steel-consuming industries.

A December 2019 study by Federal Reserve researchers concluded that Trump's 2018 tariffs were a net negative for factory jobs: "For manufacturing employment, a small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs."

  Investors

Did no one tell Trump? Word was they often didn't tell him things they knew would piss him off and only brought him pictures and stories that made him look good.

Uncertainty caused by tit-for-tat tariffs also can weigh on economic activity. Other Fed research found that uncertainty about trade policy "may have lowered aggregate U.S. investment by more than 1%" in 2018 as firms waited for clarity before committing to new projects.

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Trump's stated purpose for new and higher tariffs? Shrink the 2017 U.S. trade deficit of $514 billion, boost U.S. production and increase manufacturing jobs. However, the U.S. trade gap has gotten larger, rising to $577 billion in 2019.

...but hey, do what you want...you will anyway.