On the upside, tariff income puts money in local governments’ pockets. Tariff income can amount to billions of dollars for countries heavily involved in trade, and that money can be allocated to infrastructure, subsidies, or some form of social program. Politically, it is a way to make “foreign businesses pay taxes” when a tariff is added.

However, that cost is usually not borne by the foreign exporter. The cost is borne by the importer, and then it is passed on throughout the chain, meaning that typically businesses and consumers are paying more. This can be an issue when thinking about the impact on inflation—food, electronics, and even raw inputs must be compensated for, which will also add to inflation (and/or costs), which ultimately reduces profits for small businesses and creates an increased cost of living for families. Frequently, inflation can negate or surpass the gain of tariff income.

So, the reality is that when the government thinks about tariff income, it is great to consider individually, but it tends to be money taken from one pocket to be put into another. The lingering question is whether or not the government is allocating the money wisely, e.g., investing in the impacted sector or providing protections to vulnerable sectors, rather than just patching a hole in their budget.