Recent statements—like those from Karoline Leavitt, White House Press Secretary, and comments on Facebook—suggest that many people don’t fully understand what a tariff actually is.

At a White House Press Briefing on 3/11/2025, Ms. Leavitt stated:

“He’s [President Trump] actually not implementing tax hikes. Tariffs are a tax hike on foreign countries that again, have been ripping us off. Tariffs are a tax cut for the American people, and the President is a staunch advocate of tax cuts.”

But do tariffs really work this way? Let’s take a closer look.

CAN TARIFFS BE A TAX CUT?

Leavitt’s statement can be true in very specific cases, but those conditions don’t hold in most situations.

If the Imported Good is Highly Elastic

If consumers stop buying a product when prices rise, foreign manufacturers might cut prices to keep sales steady. In this case, the tariff is absorbed by the foreign producer instead of being passed to American consumers.

Example: A 10 percent tariff is placed on an imported premium beer. The foreign company lowers its price by 10 percent to offset the tariff, so U.S. consumers don’t pay more.

If Foreign Producers Fear Losing Market Share

If a foreign supplier fears losing customers to new competitors, they may cut prices to compensate for the tariff and hold onto their market share.

Example: An auto parts manufacturer exporting to the U.S. might lower its prices to keep American automakers from switching to domestic or other foreign suppliers.

However, these scenarios are exceptions, not the rule. In most cases, tariffs raise prices for Americans because foreign producers don’t always lower prices enough to offset the tax. Let’s explore why.

WHY DO PRICES USUALLY GO UP?

Whether a tariff raises prices depends on price elasticity—how much people change their buying habits when prices rise.

Luxury goods are elastic; people stop buying if the price increases.

Goods with substitutes are somewhat elastic; people switch to alternatives.

Goods without substitutes are less elastic; people pay more.

Necessities are inelastic; people must buy, no matter the price.

For essential goods with no real alternatives, demand stays inelastic, meaning tariffs mostly just raise prices for consumers of essential goods.

TARIFFS SHRINK YOUR CHOICES

Tariffs don’t just raise prices—they limit your options.

Imagine you’re shopping for fresh produce. You need tomatoes for a salad, but 85 percent of U.S. tomatoes come from Mexico. If a tariff makes them more expensive, what do you substitute? There is no perfect alternative.

Similarly, if beef becomes too expensive, you might switch to pork, but if you prefer beef, you’re not getting what you want—just what you can afford.

This pattern applies to many imported goods with inelastic demand, including:

Fruits and Vegetables – The U.S. imports half of its produce from Mexico, but USMCA protects most produce that originates in Mexico from tariffs, at least for now.

Grains and Potatoes – Major imports from Canada, but USMCA protects most produce that originates in Canada from tariffs, at least for now.

Steel and Aluminum – Critical for manufacturing, sourced heavily from Canada and Mexico.

Oil – 60 percent of U.S. oil imports come from Canada, accounting for 24 percent of the crude oil processed in the U.S.

Lumber – Essential for construction, with much of it coming from Canada.

When tariffs hit these inelastic goods, the price increase doesn’t just disappear. It flows through the economy, affecting business costs, consumer prices, and inflation.

THE REALITY OF “JUST BUY USA”

The idea that consumers can simply switch to American-made products assumes a frictionless transition, but that’s not how global supply chains work.

Prices Still Rise – Even U.S. manufacturers rely on imported materials like steel, semiconductors, and rare earths, leading to higher costs. Tariffs also reduce foreign competition, giving domestic producers more pricing power to raise prices.

Not Everything Can Be Made in the USA – Products like electronics, pharmaceuticals, and auto parts rely on foreign components. Reshoring can take decades.

Capacity Limits Exist – U.S. factories can’t instantly scale up to replace imports, leading to supply chain delays.

Higher Labor Costs – American wages are higher, making domestic goods more expensive. A $20 imported T-shirt might cost $40+ if made in the U.S.

Consumers Choose Price Over Origin – Even those who support “Buy American” often shop based on price.

Trade Retaliation Hurts U.S. Exports – Tariffs on imports lead to tariffs on U.S. goods, harming industries like agriculture and manufacturing.

THE RISKS OF RELYING ON TARIFFS

If companies depend on tariffs, they may stop innovating, raise prices permanently, and struggle if tariffs end. Supply chains shift, and foreign retaliation can make U.S. exports less competitive.

Companies may just raise prices rather than invest.

If tariffs are reversed by this president or the next, firms relying on them could collapse.

Investment based on tariffs carries substantial risks.

BOTTOM LINE

A tariff is a tax on the consumer. It raises prices by reducing competition, not by making American goods better or cheaper.

Folks in the U.S. wouldn’t be buying foreign products if they weren’t a good value. Tariffs take that value away, forcing consumers to pay more for the same goods.

Tariffs affect everyone. You don’t need to be an economist to see that higher prices and fewer choices hurt American consumers.