President Donald Trump’s plan to lay tariffs on goods imported from Mexico and Canada have been delayed for now, after both nations agreed to enhance their border enforcement and cooperation in last-minute deals. But tariffs on Chinese products took effect on Tuesday, and China has retaliated with their own economic measures, set to begin on February 10, leaving only a short runway to work out a deal.

Such rapid fluctuations in America’s tariff trade winds have thrown markets topsy-turvy. Readers with only a casual understanding of economics may be wondering what all of this means. After decades of mostly free trade, most Americans have only the vaguest impressions of what tariffs are.

As the once-popular policies roar back into vogue under President Trump, it’s worth understanding what tariffs are and do. Are they an underused but highly effective diplomatic tool? Are they bad economic policy? Economist Jerry Bowyer suggested on “Washington Watch” Tuesday that the answer is a bit of both.

1. Tariffs are taxes.

“One of the things that’s confusing about them is that they’re called tariffs, when they’re just taxes,” explained Bowyer. “What’s being taxed is goods or services that are purchased from overseas producers. So, if you buy avocados that are coming from Mexico, when the avocados are coming into the United States, there’s an extra tax put on them.”

Bowyer next showed listeners what lay underneath the hood. “There is an illusion that, somehow, you’re taxing the avocados,” but “avocados don’t pay taxes. You know, they just become guacamole,” he said. “So, who pays the taxes? Does Mexico pay them? Well, in the end, taxes are paid by consumers. … In the end, all the goods, all the productivity, all the costs show up in the price that we pay.”

“That’s the argument that conservatives make here in the United States,” responded Family Research Council President Tony Perkins. “When we add taxes, it’s the consumer [who] ultimately ends up paying for it. Same thing here.” Bowyer affirmed this, adding dryly, “It’s so odd … conservatives make that argument all the time, that taxes are paid by consumers. And, somehow, we think that, magically, ‘Well, no, that doesn’t apply when something is from another country.’”

2. Tariffs are protectionist and inflationary.

The economic case for tariffs relies on the flip side of this coin. As tariffs raise the price of imported goods for consumers, “People won’t buy the product because it costs too much,” said Perkins, thus hurting foreign producers.

A tax that only applies to imports also benefits domestic producers. “Then the idea is that maybe avocado farmers in California — who are not as efficient because California is not super business-friendly — maybe they’ll be able to sell more avocados because Mexico loses part of its pricing advantage,” Bowyer added. “So, it decreases competition” for domestic producers.

Those making an economic argument for tariffs often focus on the particular groups who profit, not only the total economic impact. Like many forms of taxation, from a macroeconomic perspective, a tariff “slows down the growth of the overall economy, and it causes prices to rise,” Bowyer pointed out. “One of the things that’s made capitalism so effective” is “this idea of division of labor,” he explained. Economist Adam Smith argued in “The Wealth of Nations” (1776) that the division of labor dramatically increased the total productivity of that labor, because each worker became more skilled at his task.

The productivity gained by the division of labor works not only at the microeconomic level but also at the macroeconomic level. For example, “America is not really good at growing cocoa, but sub-Saharan Africa is really good at growing cocoa. We’re really good at making microchips. Sub-Saharan Africa is not so good at that,” said Bowyer.

“Look at this theologically,” Bowyer continued. “God has spread out his gifts among the whole human family. … You even find it in the Bible that the body has different organs.” He cited Paul’s discussion of various roles within the church, “God arranged the members in the body, each one of them, as he chose. If all were a single member, where would the body be? As it is, there are many parts, yet one body” (1 Corinthians 12:18-20).

While Paul is not discussing economics, the same logic “works in economics too,” Bowyer emphasized. “And a few hundred years ago, theologians started to come forward to talk about global trade, saying, ‘In the providence of God, he made us need one another so that we’re less likely to war with one another.’ … It’s really better if we trade one another or trade with one another rather than war with one another.”

Such international trade “drives prices down,” he added, which means “tariffs tend to be inflationary” because a tariff “cuts down on that division of labor.”

3. Tariffs divide domestic producers.

The discussion of tariffs doesn’t end there. As with many economic issues, it’s important to ask (and answer) the question, what happens next? One further reason why a tariff “isn’t good for Americans,” Bowyer argued, is “because then they just counter-tariff us. So, if we tax goods coming from China … what do they do? Well, they tax pork.” Thus, America’s tariffs “might be helping people here in Pittsburgh who [produce] steel, but we’re hurting hog farmers.”

“Tariffs tend to be treated as siding with us against foreigners. But, in reality, historically in America, they’ve always been siding with one kind of American against another kind of American. Typically, tariffs support the Northeast’s manufacturing centers and hurt the South and the Midwest farming centers,” continued Bowyer. “We need to learn the lessons of history. America moved away from tariffs for a reason. They were part of the Civil War, frankly. The South didn’t want tariffs; the North did want tariffs. … They play Americans against one another.”

4. Tariffs can be evaded.

Another factor to consider is that modern global trade networks make it easy for countries to evade tariffs by routing goods through a third country. “The last time that President Trump did this [put tariffs on China], all China did is it sent intermediate goods to Thailand, and it sent them to Vietnam, and it sent them to Cambodia. And then we bought them,” said Bowyer. “Our trade deficit with China increased after the Trump tariffs. So, if the idea is to rebalance trade, it doesn’t work because they’ll just find some intermediary.”

This is not to say that tariffs can never be effective. Last month, Trump used tariffs — or, more precisely, the threat of tariffs — to great effect against Colombia. After threatening 25% tariffs on Colombian goods, as well as other punitive measures, Trump made Colombia agree to repatriate illegal immigrants with criminal records. “What he did with Colombia was astonishing,” Bowyer exclaimed. “Between the third hole and the 18th hole in a golf course, he got Colombia to take back its criminal element. I thought that was amazing. I’m all for that.”

But tariffs are not always the most effective policy tool. Given the situation, military aid or fiscal responsibility might prove more effective, while imposing far fewer costs on our own economy. “If the idea is to stop China from rising as a power, that’s fine,” said Bowyer. “I think stuff like [sending] more missiles to Taiwan might have a little more bite than, importing fewer toys from China and them importing less soybeans from us.” Furthermore, he added, “Our budget deficits are the greatest threat to the dollar. It’s not China. It’s us. … If anything beats China, it won’t be tariffs. It will be DOGE [the Department of Governmental Efficiency].”

Conclusion

“Sometimes the president or his supporters talk as though tariffs are good in the long run,” Bowyer concluded. “History has shown that to not be accurate. It’s not good for the economy. It’s not even good for the country. … They are not good in the long run.”

The fundamental economic reason for this is that tariffs are taxes, which are passed along to consumers in the form of higher prices. In response to higher prices, consumers buy less, which drags down the economy at large. Additionally, by creating an artificial advantage for domestic producers, tariffs disincentive domestic industries from innovating in ways that would make them more competitive in global markets.

“Now, it might be worth paying that price,” granted Bowyer, but not for economic reasons. “Let’s say we have a border crisis, and Mexico is not helping. And then you threaten a tariff to get them to help stop the illegal crossings for the sake of national security. Okay, great. That’s not an economic argument, [even though] that’s a pretty good argument.”

“The scenario you laid out is my understanding of both the tariffs for Canada and Mexico,” Perkins replied. President Trump is “trying to get them to step up to the table and take responsibility for what is happening at the border on their side. Now, so far, it seems to have brought them to that table.”

Perkins suggested that threatening to impose tariffs may be a strategy with unique power in Trump’s hands. “Part of the issue here is people don’t know what he’ll do. And so, it does bring them to the table of negotiations,” he said. “But the reality is, this is a double-edged sword.”

“And if that’s what we’re doing, if in the end, this is just an attempt to get them to stop illegal border crossing and send 10,000 troops [to secure the border], great. Sign me up,” Bowyer declared. “If these are negotiating tactics for international security I’m all for it. If this is the new economic program … we know it doesn’t work. So, I just hope and pray the president is just doing the first and not the second.”