Who pays Tariffs? The point people are missing.

From the moment President Trump announced "Liberation Day" and laid out a list of tariffs he planned to impose, we've heard from economists, politicians, the media and the Federal Reserve about the impact of the tariffs on consumers.  Clothing, food, technology, cars, and toys are some of the categories of products tariffs will effect.  But there is a key point they overlook in their complaints about tariffs.

From the media, we see headlines like these:

CNN - "'Sneakflation': How Trump's tariffs are gradually raising costs for American consumers."

Forbes - "Tariffs may have a bigger impact on consumers than some experts think."

The Hill - "The misery of auto tariffs is hitting families and factories."

Then there was the Federal Reserve which held off changes in the interest rate citing the "uncertainty" caused by tariffs as their reason for doing so.

Democrats' criticism has been a bit awkward because progressives support tariffs.  For example, House Democrat leader Hakeem Jeffries said "Tariffs when properly utilized, have a role to play in trying to make sure you have a competitive environment for our workers and businesses.  That's not what's going on right now.  This is a reckless economic sledgehammer..."*

According to CNN, "Economists, researchers and analysts have warned that President Donald Trump's sweeping trade policy of tacking steep tariffs on most goods that come into America will deliver a taxing blow to consumers via higher prices."**

Some are countering the argument that tariffs raise prices by saying businesses - either offshore sellers or onshore buyers - will eat the cost and not increase prices.  Given the lack of any significant inflation so far, those arguments may be correct.

As my title stated, there is a point people are missing.  

For those debating whether tariffs will result in higher prices or not, it doesn't matter.  Consumers will pay for the tariffs.  

Paying tariffs requires money.  What is the only source of money for companies?  The money consumers pay for the goods or services provided by those companies.

Companies can keep prices level by reducing their profit margin or cutting costs in other areas.  But the only source of actual revenues - cash money - for a company is the money paid by a consumer.

Let's say a company has 1000 widgets to sell and it had to pay $1000 in tariffs.  If consumers buy zero widgets - none, nada, zilch - what does the company use for money to pay the tariffs?  It can lay off staff, reduce margins, take other actions to reduce costs, but if consumers do not buy products, the company has no money to pay the tariffs.***

But that's not the point people are missing.  The point people are missing, or not saying, is consumers pay ALL business taxes, not just tariffs.  If someone wants the Trump tariffs repealed because of the impact on consumers, ask them if that means they support repealing all taxes on business.  Point out the prices of all goods and services would go down 20 to 30 percent if all corporate taxes were repealed.****

That's why Democrats have been careful to say they don't oppose tariffs, just the way Trump is using them (see the quote from Representative Hakeem Jeffries above as an example).

----------------------

* The American Prospect, article by Robert Kuttner, April 14, 2025 "Tariffs, Pundits, and Democrats" provided this quote from Representative Jeffries. The American Prospect

** CNN Business "Prices are now starting to rise because of tariffs.  Economists say this is just the beginning." CNN Business

*** Yes that is a simplification.  A company can borrow funds, sell stocks, and take other actions to raise cash and most companies have cash on hand.  But if the company sells no product, they can't pay back the lenders and their stock will fall to zero.  The only source of revenue is consumers.

**** Tax Notes - "Fact Sheet on Fair Tax Act of 2003"  The FairTax is a proposal developed by economists tasked with developing a better form of taxation for the US.  The FairTax Act would repeal all existing taxes and replace all of them with a form of national sales tax.  In developing the idea, the economists estimated the impact of business taxes, and compliance with business taxes like the cost of tax accounting, on the price of goods and services.