The Debate Over Trump’s Favorite Word Needs a Reset

The debate over tariffs has run into a dead end of thoughtless gainsaying. “Higher tariffs are good,” one side says. “No, they’re bad,” says the other. The superficiality of the arguments is a shame because the subject is deep and fascinating. Tariffs are certain to be even more important in the second Trump administration than they were in the first. We need to understand both their pros and their cons.

In a perfect world, tariff rates would be zero across the board. Governments would not get in the way of transactions between consenting individuals. Alas, we do not live in that perfect world, so some tariffs are inevitable. The tough questions, then, include: Tariffs on which products? On which countries? At what rates? Temporary or permanent? Negotiated or imposed unilaterally?

A good place to start disentangling things is the argument ad nauseam over who pays for tariffs — the consumer or the foreign producer? Contrary to what both sides sometimes assert, the question has no simple answer. “Despite over a century of theoretical debate on the incidence of tariffs, sound empirical evidence on who bears the burden of trade tariffs is sparse,” according to a 2015 article in the University of Chicago’s Chicago Policy Review.

On Thursday, at the confirmation hearing for Scott Bessent as Treasury secretary, Senator Ron Wyden, the Oregon Democrat, said of Trump’s planned tariffs, “You can call it whatever you want in terms of trying to gussy it up. They’re going to be paid for by our workers and small businesses.”

“Senator, I would respectfully disagree,” Bessent responded. Unfortunately, his answer got confusing fast. He referred to the history of optimal tariff theory, then buzzed through currency appreciation, “various elasticities,” possibly changing consumer preferences and Chinese price cutting.

Despite his gussying, Bessent came closer to the truth than Wyden in that exchange. It’s true that up front, a U.S. tariff is levied on Americans, not foreign producers. But what really matters is who bears the ultimate cost. If the foreign producer continues to charge the same amount at the border, then the final price goes up by the amount of the tariff, and the American bears the full cost. But if the foreign producer cuts its price at the border by the amount of the tariff so that the final price paid by the American is unchanged, then the foreign producer bears the full cost of the tariff.