Do Tariffs Always Raise Prices?
May 18, 2019
Recently President Trump raised tariffs on $200 billion of Chinese exports. Will American prices rise? Not necessarily. The American price of a Chinese product is determined as follows:
American Price = Chinese Price (1+t)
where t is the tariff. Clearly there are two countervailing effects on the Us price of a Chinese good. A rise in the tariff initially tends to raise it, whereas the resultant fall in the Chinese price tends to lower it. The final effect depends on the extent of the Chinese price decline.