Source: EconLog
by Jon Murphy
“Tariffs, like any tax, will generate deadweight loss in the economy. The deadweight loss is broken down into two categories: the consumption effect of the tariff and the protective effect of the tariff. The consumption effect of the tariff is the lost gains from trade that were occurring before the tariff but are now not because the tariff raised the price of the good. Under the tariff, people pay more and buy fewer units (or pay more for the same amount). We here at EconLog spend a lot of time focusing on the consumption effect of tariffs. Indeed, a lot of reporting (and claims) have been about the consumption effect: in other words, they focus on the prices consumers pay. Here, however, I want to highlight the protective effect.” (07/20/25)