Tariffs are taxes disguised as tools of economic policy or trade negotiation. More to the point, they are taxes that affect every consumer and business in ways far less visible than traditional income or consumption taxes. Unlike those comparatively transparent tax systems, which come with clear rates and a modicum of accountability, tariffs operate in the shadows—hidden with the prices of goods on store shelves. This opacity makes tariffs particularly appealing to policymakers seeking to raise revenue without the political backlash of traditional tax base expansion or rate hikes. Unfortunately, they’re also attractive to those looking to enhance their power in the marketplace.
When tariffs are imposed, they not only increase the cost of goods but also create opportunities for graft. In systems lacking proper oversight, tariff exemptions become political currency—traded between firms and officials in what amounts to a pay-to-play arrangement. Lobbyists, campaign contributions, and political connections may determine who benefits and who bears the burden rather than unbiased economic factors.
Tariffs as Hidden Taxes
At their core, tariffs are no different from taxes levied on other tax bases—they generate revenue for the government by applying an excise to a given transaction. Unlike familiar taxes, however, tariffs avoid the public’s scrutiny because they are embedded in the price of goods. There is no “tariff” line on your receipt from Target – nor will your reflect how much tariffs have reduced your income. Instead, when a tariff is imposed on imported products, the additional cost is almost always passed on to consumers in the form of higher prices. The effect is obscured, awash in a sea of ordinary price hikes, inflation, and business decisions made by the vendor.
This opacity is what makes tariffs politically attractive—politicians can impose them to fill government coffers or signal toughness in a trade negotiation without the backlash that would accompany the same policy pushed through the tax code. Prices have gone up, but customers aren’t exactly sure who to blame. Setting aside the question of feasibility, a president that promised to implement a federal sales tax in order to punish a trade partner through fewer sales would probably not see their approval rating skyrocket. And yet, that is exactly what a tariff is.
Unlike traditional taxes, tariffs often fly under consumer and voter radar, shielded by technical complexity and the false understanding that they are imposed on foreign exporters. After all, the tariff explicitly states it is on Chinese agricultural exports—what does that have to do with me?
A tariff on foreign electronics translates to more expensive laptops and a tariff on agricultural products inflate grocery bills. The cost is only in the most indirect and attenuated sense passed back to the exporting country: under the assumption that applied tariffs will raise the cost of imported goods and customers will purchase fewer of those goods. There are myriad assumptions baked into that analysis, however: chief among them that there is an alternative domestically-produced option to choose. Following in close second is the assumption that said domestically-produced option will not simply be priced to match the tariff-bearing import.
If I sell a domestically-produced widget for $5, alongside a tariff-bearing imported widget that costs $10, there is little incentive for me to keep my price at $5. In fact, the increased demand for my widget may necessitate my raising of the price—at least ostensibly so that I can expand production. $9.99 sounds fair.
The result is that a tariff operates like a sales tax with an added layer of economic inefficiency. It distorts consumer choice by raising prices on certain goods, leading to higher spending on domestic alternatives that may not be as cost-effective, desirable, or in sufficient supply. The revenue generated from tariffs, though potentially substantial, is paid indirectly and generated from the functional equivalent of a regressive tax on consumers.
While all taxes necessarily come with trade-offs and potential for market distortions, tariffs uniquely burden consumers while hiding mechanisms of impact and purporting to further goals they do not in fact further. Compounding this issue is the troubling issue with how tariffs are administered—which can turn an inefficient system into a corrupt one.
The Inherent Corruptibility of Tariff Systems
The opacity of tariffs, both in terms of their economic effect and their application, does more than simply shield their burden from public view—it sets the stage for corruption. Unlike a transparent tax system, where rates and exemptions are codified into law and subject to oversight, tariffs can operate in a discretionary gray zone.
Consider for example the process of granting tariff exemptions—intended to shield domestic interests from undue harm where no domestic alternative exists for a critical imported product. On paper, determining the economic merit of a given exemption seems straightforward enough; but a moments reflection reveals the discretion given to whatever entity is tasked with determining when exactly no domestic alternative is present and what exactly a critical imported product is. The answer, it seems, depends less on policy and more on whose pen is poised over the exemption.
Research confirms the problematic nature of this arrangement, studies on the US Trade Representative exemption process reveal that firms with ties to the ruling political party are far more likely to receive favorable treatment. Campaign contributions to politicians or lobbying efforts targeting committees increase the chances of securing exemptions. And, conversely, firms that support opposing political positions may see their requests denied at a rate more frequent than those that comport with the ruling party.
The implications of this style of corruption extends beyond individual exemptions. The shadow of this system looms larger than the actual practice – when firms believe access to policymakers, rather than competitiveness, determines success, they will adapt to comport with rent-seeking rather than productive investment. Put simply, more money will flow into political coffers as against research and development.
This kind of abuse would be more difficult in a transparent tax system. Traditional tax policies, despite their innumerable flaws, are generally governed by clear rules and administered by agencies subject to at least some degree of oversight. By contrast, the discretionary nature of tariff administration is a vacuum into which corruption is pulled, turning what might seem like a technical trade policy into a tool of political patronage.
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