#4 - Tariffs are like a tax which hit poor people hardest
Tariffs are used to protect domestic industries or, more recently in some markets, to promise a return of employment. The truth is, tariffs do not bring back manufacturing jobs, which are threatened by automation as much as international trade, as the newspaper The Economist explains. Instead, higher tariffs or other protectionist measures act as a consumption tax hitting low income consumers hardest, “reducing the after-tax income of the poorest by 1.6% and that of the richest by only 0.3%”, according to U.S. data. In effect, the study argues, tariffs are an arbitrary and regressive tax.
Tariffs on apparel and food contribute most to the burden
The proportion of after-tax income which is eaten up by tariffs is almost five times as high for the poorest households than for top-earners. The reason: less well-off households generally spend more on traded goods as a share of expenditure or income and because of the higher level of tariffs placed on some key consumer goods, chief amongst these food and apparel!
The analysis uses data from the U.S. which levied almost USD 38 billion on a total of USD 2.71 trillion worth of imports in 2016 (World Bank data). The member states of the EU collected EUR 25 billion in customs duties from a total of EUR 1.7 trillion worth of imports. Customs duties collected amounted to 0.2% of GDP in the U.S. and 0.15% in the EU in 2016.
This is the fourth of ten messages on international trade, which we will publish over the coming weeks. If you like this please give us a star below. If you wish to respond, please send us a message via our contact form.