Tariffs Are Consumption Taxes Wearing a Trade Costume

On February 1, 2025, President Trump signed executive orders imposing a 25 percent tariff on most imports from Mexico and Canada and a 10 percent tariff on imports from China. By April 2, the administration had added a 10 percent baseline tariff on nearly all trading partners plus steeper country specific rates, with China eventually facing cumulative rates above 145 percent before partial rollbacks. The Yale Budget Lab estimated on April 15 that the average effective U.S. Tariff rate had risen to 22.5 percent, the highest since 1909. That same analysis projected the tariffs would cost the average American household roughly 3,800 dollars per year in higher prices.

A tariff is a tax. It is collected at the border, but it is not paid by the exporting country. It is paid by the importer of record, who is almost always a U.S. Business. That business then has three options: absorb the cost and take a lower margin, pass the cost to the consumer through higher retail prices, or split the cost between the two. Decades of empirical research, including the widely cited 2019 work by Amiti, Redding, and Weinstein on the 2018 tariffs, found that roughly 100 percent of the cost was passed through to domestic prices within a few months. The 2025 round is tracking the same pattern. Walmart's CFO said in May that shoppers would see price increases by late May and into June. Target, Best Buy, and Stanley Black and Decker issued similar guidance on earnings calls.

That is the first receipt. The tariff is a consumption tax, collected from American households, routed through the Treasury. The administration projects 700 billion dollars in tariff revenue over ten years under current schedules. For scale, that is roughly the ten year cost of eliminating the federal tax on Social Security benefits, a proposal the same administration promoted during the 2024 campaign.

Apply the Transfer Ratio. Every dollar a household pays in tariff driven price increases at the register has to travel through several hands before any of it reaches a domestic worker whose job was allegedly protected. The Peterson Institute estimated in its 2019 analysis by Flaaen, Hortaçsu, and Tortorice that the 2018 washing machine tariffs cost consumers about 815,000 dollars per job created in the domestic appliance industry. The jobs were real. They numbered about 1,800. The cost, spread across American buyers of washers and dryers, was roughly 1.5 billion dollars annually. The same study documented an average price increase of roughly 86 dollars per washer in the year following the tariff, with comparable increases on dryers despite dryers not being covered by the tariff itself. When the arithmetic is run against typical manufacturing wages in the sector, the share of each consumer dollar that reaches a protected worker as wages comes out in the low double digits on a percentage basis. The rest went to higher corporate margins at Whirlpool and its competitors, to tariff revenue, and to deadweight loss.

This is the shape of the policy. A consumption tax is imposed. A small number of concentrated producers benefit. A large number of diffuse consumers pay. The concentrated producers have lobbyists and press releases. The diffuse consumers have receipts at Target. The ratio between what the consumer pays and what the protected worker receives in wages is not a rounding error. It is the policy.

Call it by its name. When a government collects money from one group, routes a sliver of it to a politically favored group, and calls the transaction a defense of national industry, the economic substance is a wealth transfer. The rhetorical frame is not. This is the structure the Theft by Another Name framework describes. The system is visible. Intent is beside the point. A washing machine buyer in Ohio pays roughly 86 dollars more for her appliance, per the Flaaen, Hortaçsu, and Tortorice estimate, so that a Clyde, Ohio line worker can keep a job that, in aggregate accounting, costs her and her neighbors more per year than the line worker earns.

Defenders of the 2025 tariffs offer three responses. Each deserves a receipt.

First, the claim that foreign countries pay the tariff. U.S. Customs and Border Protection publishes the data. In March 2025, tariff collections totaled 8.75 billion dollars. Every one of those dollars was remitted by a U.S. Importer. The Commerce Department does not send an invoice to Beijing. The invoice goes to an American company, and the company passes the cost along. The claim that China or Mexico pays the tariff has been fact checked by the Congressional Research Service, the Tax Foundation, the Peterson Institute, and every major academic study of the 2018 and 2019 rounds. The claim is not contested among economists. It is contested only in press conferences.

Second, the claim that tariffs will reshore manufacturing. The 2018 steel and aluminum tariffs produced about 1,000 new steel jobs and destroyed, by the Federal Reserve's 2019 estimate, about 75,000 manufacturing jobs in sectors that use steel and aluminum as inputs. The net employment effect was sharply negative. The 2025 tariffs hit a much wider range of inputs, including components that no U.S. Producer currently makes at scale. A tariff on a good that has no domestic substitute is a tax with no protective function. It is revenue, routed through higher consumer prices, with no offsetting industrial benefit.

Third, the claim that tariffs are a negotiating tool. Some are. The Mexico and Canada tariffs were paused, reimposed, and renegotiated several times in the first hundred days of the administration. But a tool used this often, against this many counterparties, with this much disruption to input prices and capital planning, is not a scalpel. The National Federation of Independent Business reported in May that small business uncertainty hit its second highest reading on record. Capital expenditure plans in the April Philadelphia Fed survey fell to levels last seen in the 2020 recession. Whatever leverage the tariffs generate at the negotiating table is bought with domestic investment the economy will not make.

The serious case for tariffs exists. A country may decide that certain industries, shipbuilding, semiconductors, rare earth processing, are worth protecting at a cost, because they carry strategic value that markets will not price. That case can be made. It requires naming the cost, naming the beneficiary, and naming the tradeoff. The CHIPS Act did this. It allocated 52 billion dollars, named the recipients, and subjected them to congressional oversight. A 22.5 percent across the board tariff does none of these things. It raises prices on shoes, coffee, electronics, lumber, and auto parts without any industrial strategy attached to the revenue.

The policy that results is a consumption tax of roughly 3,800 dollars per household per year, levied without a vote in Congress, justified by claims that the data refutes, and defended with a vocabulary designed to obscure who pays and who receives. The system is visible on the customs form and on the retail receipt. The ratio between what the consumer pays and what the protected worker takes home is measurable and small. The rest of the money does what money does when a government collects it without calling it a tax. It goes to the people closest to the decision.

That is the tariff. Named correctly, it explains itself.

What say you?

Originally published at https://henrygoodstone.com/commentary/tariffs-are-consumption-taxes-wearing-a-trade-costume/