Tariffs 101: How It Works, with the American Importer Paying, followed by Consumers

It should need no explanation, but it does. For many it will be too simple -- "I already knew that." But not for everyone so here it is.

In various conversations and interactions online, it has become clear to me that a lot of people do not understand how tariffs work—starting with Donald Trump, followed by MAGA minions, but also others, even people over here on Earth 1, who are just confused. Here’s how it works.

The Intent of a Tariff

The intent of a tariff is to make foreign goods less affordable, thus encouraging consumers to “buy American”, and encouraging American manufacturers. Sounds okay, but in an interconnected world, there are a lot of things that are just much more affordable when they are grown or made overseas — bannas, avocados, cell phones to name a few.

But let’s say there’s a 20% tariff on a widget created in China. Trump wants to use this tariff as a way to punish China and bring back American manufacturing. But …..the Chinese aren’t the ones paying for these tariffs. It is not the EXPORTER who pays the tariff, it is the IMPORTER — i.e. the American distributor or retailer importing the product which they will then sell to Americns. So right from the start, it’s Americans who pay the tariff, not foreigner — specifically, the importer company.

Why It Functions Like a Sales Tax

Now unless you live in some other universe, you know that the importer who just paid 20% more for the product is not going to just eat that. No, they’re going to pass it along to the consumers. So — imagine you’re an American distributor importing widgets from China. These widgets cost $100 each, and before the tariff you sold them to a retail chain for $120 and they sold them to consumers for $150. Now — Trump slapped a 20% tariff on them, supposedly to protect U.S. manufacturing. You pay that at the border, and now what do you do? You can’t sell it to retailers at $120 — now you sell it to retailers at $140, and they in turn sell to consumers at $170. So who really ends up paying.

Why It’s Not as Easy as 1-2-3

There will be some who say okay, so what’s wrong with that? Because, they’ll say, maybe that makes the American-made widgets more competitive, and more people will buy them, providing a boost to the US economy. Except ….chances are the American. made widget, if it exists, still costs more than the $170 the foreign made widget now costs, and so the net result of all this is to drive prices up for Americans with little to no larger benefit to the economy as a whole.

The Trade War America Doesn’t Need

TThat’s not all. While it’s true that American importers pay the tariff, the ripple effects don’t stop there. Tariffs make foreign products more expensive and less competitive in the U.S. market. So, what do those exporting countries do in response? They retaliate. And not in a small way. If the U.S. slaps across-the-board tariffs on imports, we can expect an all-out trade war—China and other countries will impose tariffs of their own. That means American-made goods become more expensive for buyers abroad, slashing demand for U.S. exports.

It’s a vicious cycle. U.S. manufacturers, farmers, and other industries reliant on foreign markets suddenly find themselves locked out because tariffs have made their products too expensive for overseas consumers. This hurts American jobs and cuts into the profits of U.S. companies. So, while Trump’s tariffs might sound tough on paper, they actually weaken the very economy they’re supposed to protect. Instead of punishing foreign nations, these trade wars end up hurting American businesses, workers, and consumers twice over—once at the border, and again when our exports can’t compete in the global marketplace.

It’s economic self-sabotage, pure and simple.