U.S. Trade Commission Admits Tariffs Raised Prices for American Consumers

American companies and consumers "bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs."


Tariffs raise prices.

That's something that shouldn't count as news, but sadly qualifies these days.

Five years after then-President Donald Trump declared a trade war with China and slapped new tariffs on steel and aluminum, the U.S. International Trade Commission (ITC) has found that those tariffs jacked up prices and reduced the availability of tariffed goods. In a report released Wednesday, the commission reported that American companies and consumers "bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs."

After investigating the consequences of both Trump's Section 232 tariffs (the supposed "national security" levies against steel and aluminum) and his Section 301 tariffs (imposed against a wide range of items imported from China), the ITC reported that in both cases, domestic price increases matched the cost of the tariffs almost exactly. "The USITC estimated that prices increased by about 1 percent for each 1 percent increase in the tariffs," the report states.

That's pretty much the economics textbook explanation for how tariffs work. They raise prices on imports to give an advantage to domestic products. But whatever small benefits might accrue to those domestic producers are overwhelmed by the costs.

The ITC report bears that out.

The steel tariffs, for example, caused imports into the U.S. to fall by 24 percent, according to the ITC's report. The reduction in supply caused prices for steel products to rise by 2.4 percent. In response, U.S. steelmakers churned out more steel, and by 2021 domestic steel production was $1.3 billion higher because of the tariffs, the ITC reports. Similarly, domestic aluminum production increased by $0.9 billion as a result of the tariffs.

That might seem to fit neatly into the narrative that Trump pitched: Tariffs would restrict imports and revitalize American manufacturing.

But it's not the whole story.

The higher prices created by the steel and aluminum tariffs forced those costs onto businesses that buy steel and aluminum. As a result, they cut production by 0.6 percent. Production by those downstream industries fell by $3.5 billion as a result of the tariffs, the ITC report concludes.

Trump used to talk about tariffs as if they would impose new transaction costs on businesses in China. President Joe Biden's top trade officials have made a version of the same argument, claiming that the tariffs can't be removed because it would somehow ease leverage against China.

But Americans pay the full cost of the tariffs, and the real dynamic has always been a domestic one. Tariffs grant small advantages to some domestic industries at the expense of downstream producers and consumers.

This isn't news either! But now that the federal government's own trade experts have come to the same conclusion as numerous academics, economists, and think tanks, maybe Biden will finally listen. We shouldn't need another five years of real-world evidence to confirm what everyone outside the White House already knows.