How do tariffs affect the economy?

Tariffs can have unintended side effects. They can make domestic industries less efficient and innovative by reducing competition. They can hurt domestic consumers, since a lack of competition tends to push up prices. They can generate tensions by favoring certain industries, or geographic regions, over others.

How do tariffs and trade barriers affect businesses?

The effect of tariffs and trade barriers on businesses, consumers, and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this period, some businesses will profit, and the government will see an increase in revenue from duties .

Do tariffs affect the trade balance?

Panel F shows the net effects of higher tariffs on the trade balance are small and insignificant; absent shifts in saving or investment, commercial policy has little effect on the trade balance. The reduced-form approach does not allow for a full-fledged analysis of the welfare effects of tariffs.