Are Tariffs Taxes on Consumption or Production?

Generally speaking, in economics consumption takes are less disruptive than production taxes.  Since people produce to consume, if a tax falls on production then it reduces production which in turn reduces consumption.  Conversely, if a tax falls on consumption, it can have less of a negative effect.  Tariffs are sometimes defined as a consumption tax, and thus would appear to be preferable to a tax on production like a corporate tax rate or capital gains tax.

Whether or not a tariff is preferable to corporate taxes or capital gains tax would be an empirical question, and one I am not interested in answering at this time.  Rather, I want to push back on the definition of a tariff as a consumption and not production tax.

Much of the US’ imports are of raw/intermediate/capital goods (I forget the exact statistic off the top of my head, but I believe it’s around 55-60%).  Since these are used in the production process, a tariff is necessarily a tax on production.

But what about the other 40%, the consumer goods?  Would a tariff be a tax on production here as well?  I’d argue “yes.”  This is a little counterintutive at first: why would a good imported into the US and sold to consumers without some manufacturing done to it be considered production?  Let’s take a look at the definition of production (emphasis added):

Production occurs when the physical characteristics of resources are improved.  Although we commonly think of production as changing the form of material–from ores to steel, from steel to cars or I-beams–production also includes improving the time of avalibility or location of a good.  moving water from a well into a house is productive, as are carrying coal from a mine to a furnace; tilling the soil, planting seeds, or caring for the crop; harvesting, cleaning, grading, transporting, preserving, and distributing the crop to retail stores; or advertising, wrapping, and delivering a good to the customer’s home.  (Source: Page 136)

Imports enter the US in some port (LA, New York, Boston, etc).  They then must be transported to warehouses and retail stores before they can be consumed.  Since transportation is part of production (it is improving both the time availability and location of a good), then a tariff necessarily is a production tax since the goods are used in some form of production.

Again, whether or not a tariff is preferable to other kinds of taxes is an empirical question.  The point of this post is to discuss a terminological issue.

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