USA HISTORY

Detailed explanation-1: -When a country imposes a tariff, foreign exporters have greater difficulty in selling their products. As their exports decline, they may cut prices in order to keep their sales from falling drastically. Thus, for example, when a tariff of $10.00 is imposed, foreign exporters may cut their price by, say, $6.00.

Detailed explanation-2: -Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers.

Detailed explanation-3: -Tariffs encourage the deflection of trade to inefficient producers, and smuggling to evade tariffs; such distortions reduce welfare. Further, consumers lose more from a tariff than producers gain, so there is “deadweight loss”.

Detailed explanation-4: -Trade barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.

Detailed explanation-5: -Specifically, a one per cent reduction in input tariffs raises total factor productivity levels by about two percent. The productivity gains from liberalization appear to materialize rather quickly, within 1-5 years, with the estimated impact leveling off over time.