The assertion in the title of this post may sound obvious. However, many people believe that an import tariff is a tax on imports, not on exports. In fact, the tax discourages both imports and exports to roughly the same extent.
To be clear, if tariffs do reduce the budget deficit, they may reduce imports slightly more than they reduce exports. No one believes that was the case with the tariffs imposed on the US by recent administrations.
Another misconception is that import tariffs only reduce exports if other countries retaliate. This is not true. Tariffs move exchange rates in ways that can reduce exports almost as much as they reduce imports. Even if there was no clear “retaliation” from other countries.
The intuition here is that exports are a way of paying for imports. Just as taxing gasoline reduces both sales and purchases of gasoline, taxing one side of a transaction reduces both sides. It doesn’t matter whether the tax is levied on buyers or sellers.
surely, Product The situation may be different if countries are exchanging financial assets through trade: the trade balance (strictly speaking the current account) is national savings minus national investment. But unless tariffs also reduce a fiscal deficit (negative savings), tariffs are unlikely to increase a trade surplus or reduce a trade deficit.
Bloomberg There is an article discussing how US farmers are losing market share to Brazilian farmers.
The aging rural population is the latest blow to a country that has been losing its agricultural dominance for years. That status has been a key source of political power, including ties with China, the largest agricultural importer. But U.S.-China relations have deteriorated during Donald Trump’s trade war, leading Brazil to replace some of the U.S. supply. Already the top soybean exporter, Brazil may be on track to overtake the U.S. in corn exports as well. The U.S. agricultural trade deficit will widen to a record $32 billion in fiscal 2024, putting households at increased risk of supply chain disruptions and price spikes if a distant disaster strikes.
A decline in agricultural export competitiveness is exactly what you would expect when a country institutes higher tariffs. This has nothing to do with “US-China relations” and everything to do with the real exchange rate.
This doesn’t mean that tariffs are necessarily a bad idea. Rather, this analysis suggests that it would be a mistake to turn to protectionism under the assumption that tariffs only reduce imports, when in fact they reduce both imports and exports by roughly equal amounts.
P.S.: The same applies to export taxes, which also reduce imports. For the same general reasons, a policy regime that combines uniform import tariffs with equal export subsidies comes pretty close to a pure free trade regime, since the two policies roughly cancel each other out. Thus, countries such as South Korea were not as “mercantilist” as many claim during their high-growth periods.
