From the editors:
We have an in-depth discussion about tariffs across two Liberty Fund sites today. EconLog contributor David Hebert has a piece on the consequences of America’s new, more protectionist trade policies on our sister site, Law and Libertythis morning. This piece makes a good complement to today’s EconLog post by Jon Murphy, No Manufacturing Jolt from Tariffs.
From Hebert’s piece:
Who Really Pays the Tariff?
Lynn’s central argument rests on a fundamental confusion between what economists refer to as the “legal incidence” and the “economic incidence” of a tax. Legally, because tariffs are a tax on imports, it is the US importers who must write the check to Customs and Border Protection. But this says nothing about who actually pays the tariff.
For example, when landlords’ property taxes go up, who pays? The landlord will obviously write the check to the county assessor, but unless Lynn thinks that landlords are running charities, that cost gets passed on to tenants in the form of higher rent, less frequent maintenance, or fewer included benefits (utilities or access to designated parking, for example). The legal incidence falls on the landlord, but the economic incidence falls disproportionately on renters, i.e., young Americans already besieged by high housing costs.
Tariffs work the same way. US Customs and Border Protection bills the American importer directly, which is the legal incidence of the tariff. But the economic burden gets distributed among American consumers, American importers, and foreign exporters, depending on the particulars of the individual markets.
Read Hebert’s full essay hereand Jon Murphy’s EconLog post here.
