Trade tariffs: Who really pays and at what cost?

News24

09-07-2025

Tariffs boost import prices to shield domestic industries from competition.
Importers bear tariff costs, ultimately increasing prices for local consumers.
Tariffs disrupt global chains and reduce trade, dampening overall economic growth.
Tariffs are government-imposed taxes on imported goods and services. Their primary purpose is to make foreign products more expensive than the domestic ones, thereby shielding local industries from international competition.
There are two main types of tariffs:
Specific tariffs, which are fixed fees per unit imported.
Ad valorem tariffs which are based on a percentage of the item's value.
While the concept of tariffs may seem straightforward, their ripple effects across the economy, from producers to consumers and even international relations, are anything but.
Who carries the cost of tariffs?
A common misunderstanding is that foreign exporters pay the tariff. In practice, it is the domestic importer, typically a local business, which pays the import duty when goods enter the country. This cost is often passed down the supply chain, resulting in higher prices for consumers.
Sometimes, foreign producers may lower their prices slightly to stay competitive, sharing the cost of the tariff. However, in most cases, the consumer ends up paying more.
Economic effects of trade tariffs
Tariffs can have broad and sometimes unintended consequences:
Higher prices for consumers: Importers usually increase retail prices to cover the cost of tariffs, which reduces consumers' purchasing power and limits product options, especially when local alternatives are not readily available.
Decline in trade volumes: By making imported goods less attractive, tariffs tend to reduce overall trade. Countries affected by these measures may retaliate with their own tariffs, leading to trade disputes or even trade wars.
Reduced efficiency: Tariffs may protect less competitive domestic industries, which discourages innovation and efficient use of resources. Sectors that survive because of protection rather than performance may become complacent.
Mixed impact on local industries: While some industries may benefit from reduced competition, others, particularly those that rely on imported materials, face increased production costs. Manufacturers in the automotive or electronics sectors, for instance, may pass those costs on to consumers or suffer reduced profit margins.
Disruption of global supply chains: Today's production processes often involve components sourced from several countries. Tariffs complicate these supply chains, introducing delays and additional costs, which can be felt across multiple industries.
Impact on growth and employment: In the long term, tariffs can weigh on economic growth. While they may temporarily protect jobs in certain sectors, other parts of the economy often see job losses, resulting in a net negative effect on employment.
Revenue for the state at a cost: Tariffs can raise government revenue in the short term. However, as trade volumes decrease, this income stream tends to shrink. Moreover, the broader economic fallout can offset the initial gains.
US President Donald Trump's trade tariff timeline (February – July)
1 February: 25% tariffs on Mexican/Canadian goods, 10% on Chinese goods over fentanyl and immigration concerns.
3 February: Pauses Mexico/Canada tariffs for 30 days; no China deal.
7 February: Delays China's de minimis package tariffs.
10 February: Steel/aluminium tariffs raised to 25%.
3 March: Announces 25% tariffs (Mexico/Canada) and doubles fentanyl tariffs on China.
5 - 6 March: Delays vehicle tariffs and exempts North American Free Trade Agreement goods for a month.
26 March: 25% tariffs on imported cars and light trucks.
2 April: Introduces 10% global tariff; higher for key partners.
9 April: 90-day pause on country-specific tariffs; 10% global tariff remains; China tariffs raised to 145%.
13 April: Exemptions granted for electronics (for example smartphones).
22 April: Tariff probes on pharma and semiconductors launched.
4 May: 100% tariff on foreign-made movies.
9 May: US-UK trade deal: 10% tariffs remain, automotive/agriculture eased.
12 - 13 May: US–China truce: tariffs temporarily reduced.
23 May: Plans 50% EU tariffs, threatens Apple with a 25% tariff hike.
25 - 29 May: EU tariff deadline extended; courts block, then partially reinstate tariffs.
3 June: Steel/aluminium tariffs hiked to 50%.
12 June: Warns of auto tariff hikes.
3 July: 20% tariff on Vietnamese exports; 40% on trans-shipments.
6 July: BRICS-aligned nations face an extra 10% tariffs.
7-8 July: Announces implementation of new tariffs (25% to 40%) on 14 countries (including 30% on SA); 50% on copper, tariffs on pharma/semis pending from 1 August.
Tariffs remain a potent policy tool, often deployed to support domestic industries or as leverage in trade negotiations. But their broader economic costs, including reduced consumer choice, inefficient resource allocation and dampened economic growth, often outweigh the benefits.
In the end, it is not the foreign exporters, but local consumers and businesses that shoulder the burden.