The Tax Foundation bills itself as the “world’s leading nonpartisan tax policy nonprofit”, but they do not understand the basic concepts of how tariffs work — or even what they are.
In this article, we’ll walk through the Tax Foundation’s big mistakes, and how the group’s errors create disinformation and confuse the debate.
What are tariffs?
The World Trade Organization (WTO) has a simple definition: tariffs are “customs duties on merchandise imports.”
You might ask, what’s a customs duty? The United States International Trade Administration helpfully clarifies in its own definition that the words are interchangeable: “A tariff or duty (the words are used interchangeably) is a tax levied by governments on the value including freight and insurance of imported products.”
The Tax Foundation Gets Its Tariff Definition Wrong
The group has a “TaxEDU” section of their website they market as a “one-stop resource for tax education”.
In their TaxEDU page on tariffs , they write, repeatedly, that “Tariffs are taxes imposed by one country on goods or services imported from another country.”
That’s 100% wrong. Tariffs don’t interface with services. To quote the Office of U.S. Trade Representative in response: “services are not subject to tariffs”.
So how did the Tax Foundation get this wrong? This is speculation, but they may have messed up copying from a dictionary. In the English language, the word “tariff” is used to describe two separate things. The Cambridge Dictionary helpfully explains the two separate uses of the word “tariff”:
“A tax on goods coming into or going out of a country” (use in Tax, Economics, Commerce); or
“A list of fixed prices charged by a company for services, by a hotel for rooms, etc.” (Commerce).
The Cambridge Dictionary is right: in the context of international trade, a tariff is a tax on goods coming into or going out of a country.
And separately — not as a government tax — a tariff is a fixed price charged for services.
Embarrassing!
Tax Foundation Doubles-Down On The False Claim That “Tariffs are legally paid by the US importer”, and ‘Fact Checkers’ run with it
On September 9, 2024, CNN Politics writer Katie Lobosco published an article titled: “Fact check: Trump and Vance keep falsely describing how tariffs work”.
But it was Ms. Lobosco, not former President Donald Trump or Senator JD Vance, who published falsehoods. Ms. Lobosco wrote incorrectly that, “When the US puts a tariff on an imported good, the cost of the tariff comes directly out of the bank account of an American buyer.”
She also asserted as follows, emphasis in original:
“Facts First: Trump and Vance’s claims about how tariffs work are false. A tariff is a tax that is paid by US businesses – not other countries – when a foreign-made good arrives at the American border.”
Had she consulted any customs broker, or done a cursory glance at the website of prominent customs brokers, or spoken to a trade lawyer, she’d have quickly discovered that foreign businesses can become “importers” without even having to incorporate a subsidiary here.
Under customs law, foreign corporations are called “Non-Resident Importers”, and they have multiple options for paying tariffs directly to the U.S. government.
So this idea that tariffs are uniformly “paid by US businesses”, and that “the cost of the tariff comes directly out of the bank account of an American buyer” is categorically wrong.
When contacted by CPA, Ms. Lobosco said she’d consult with her editor. Subsequently, Ms. Lobosco’s article was stealthily updated to add the word “usually” before “comes directly out of the bank account of an American buyer.” Other assertions that U.S. businesses always pay the tariff remain, however, including the “Facts First” assertion at the beginning of the article.
How was a CNN Politics fact checker so badly informed? Look to the Tax Foundation, Cato Institute.
Anti-tariff economists, including the Tax Foundation’s Erica York who was quoted in Ms. Lobosco’s article, repeatedly and confidently assert the same fundamental error (see, e.g., here and here). Ms. York has done this despite being corrected multiple times.
The Tax Foundation isn’t alone in not understanding the legal mechanics of tariffs. The Cato Institute makes the same false assertion in a website publication ironically titled “Separating Tariff Facts from Tariff Fictions”. An infographic, excerpted, states that “By law, the importer located in Home [sic] must pay the widget tariff”.
Not only is their tariff claim legally wrong, but it ignores the reality of 21st century transnational enterprise.
Recall that Ms. Lobosco’s article referred to tariffs coming out of the bank account of “an American buyer”.
Free trade economists love to conjure up images of “trade” as if it were still the ancient world, where economic activity was all undertaken by arms-length individuals or small businesses with a clear, singular nationality. As if a swashbuckling buccaneer was loading up their galleon with wares purchased at the harbor market, getting ready to sail abroad and export them to foreign buyers.
This image of “trade” bears no relation to 21st century commerce. For example, the tariff debate in 2024 has focused heavily on automotive. While there are certainly a handful of exotic cars that are imported by individual “American buyers”, who are real people buying from unrelated foreign sellers, the vast majority of U.S. automotive imports consist of the ‘exporter’ and ‘importer’ being two parts of the same transnational enterprise.
For example, how many Americans (people, that is) would consider Chinese car giant BYD “American”? No one. And that wouldn’t change even if people were told that BYD had a Delaware subsidiary, BYD Motors LLC, with an address in Pasadena, California.
Under Ms. York and Ms. Lobosco’s framing, BYD Motors LLC is a poor tariff victim, that legally must pay all the cost of the tariff. In reality, BYD is a transnational enterprise, enjoying tremendous state subsidies from China, and its U.S. subsidiary is a loss generator while the company attempts to build a beachhead in America.
Insisting that U.S.-organized entities are legally required to pay the tariff happens to be flat-out wrong, and the framing that “American buyers” typically pay the tariff is equally wrong.
Can foreign countries pay tariffs? Absolutely.
Export subsidies are nothing new, they have been around for hundreds of years. During the Obama Administration, the United States sued China at the WTO for China’s “export base” program which provided cash grants for prioritized exports, including in the auto and auto parts industry. China, and many other foreign countries, absolutely provide cash to promote favored exports to reimburse them for tariffs that are imposed by other countries.
Mindlessly asserting that a “tariff is a tax that is paid by US businesses — not other countries” is about as logical as asserting that “closing costs of a house are paid from real estate lawyers’ escrow accounts — not home buyers”.
The USITC also found that tariffs boosted production in all twelve of the industries studied.
The Tax Foundation reflects the views of its transnational backers
The Tax Foundation’s Board members include employees of Procter & Gamble, Microsoft, Apple, and Amazon. All these companies fight to generally oppose any new revenues for the federal government, or at least attempt to steer policy makers to income tax implementations that allow them to continue to seclude profits off-shore in tax havens.
They hate tariffs, because tariffs are a lot harder to dodge than income taxes. Unfortunately, they can use all that money to fund think tanks and media who will launder their policy positions as independent expert advice.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
The Tax Foundation Makes Fundamental Errors On What A Tariff Is And How Tariffs Work
The Tax Foundation bills itself as the “world’s leading nonpartisan tax policy nonprofit”, but they do not understand the basic concepts of how tariffs work — or even what they are.
In this article, we’ll walk through the Tax Foundation’s big mistakes, and how the group’s errors create disinformation and confuse the debate.
What are tariffs?
The World Trade Organization (WTO) has a simple definition: tariffs are “customs duties on merchandise imports.”
You might ask, what’s a customs duty? The United States International Trade Administration helpfully clarifies in its own definition that the words are interchangeable: “A tariff or duty (the words are used interchangeably) is a tax levied by governments on the value including freight and insurance of imported products.”
Now, the above is a bit U.S.-centric, because tariffs can be assessed on exports in addition to imports, but that’s not something the United States does. From a global perspective, the European Commission’s definition — “A tariff is a tax on imports or exports of goods between countries” — is more complete.
The Tax Foundation Gets Its Tariff Definition Wrong
The group has a “TaxEDU” section of their website they market as a “one-stop resource for tax education”.
In their TaxEDU page on tariffs , they write, repeatedly, that “Tariffs are taxes imposed by one country on goods or services imported from another country.”
That’s 100% wrong. Tariffs don’t interface with services. To quote the Office of U.S. Trade Representative in response: “services are not subject to tariffs”.
This isn’t just a U.S. thing, either. The WTO administers a global framework for trade in services called the General Agreement on Trade in Services (GATS). It doesn’t mention tariffs once, despite being modeled after the General Agreement on Trade and Tariffs (GATT), which covers merchandise trade.
So how did the Tax Foundation get this wrong? This is speculation, but they may have messed up copying from a dictionary. In the English language, the word “tariff” is used to describe two separate things. The Cambridge Dictionary helpfully explains the two separate uses of the word “tariff”:
The Cambridge Dictionary is right: in the context of international trade, a tariff is a tax on goods coming into or going out of a country.
And separately — not as a government tax — a tariff is a fixed price charged for services.
Embarrassing!
Tax Foundation Doubles-Down On The False Claim That “Tariffs are legally paid by the US importer”, and ‘Fact Checkers’ run with it
On September 9, 2024, CNN Politics writer Katie Lobosco published an article titled: “Fact check: Trump and Vance keep falsely describing how tariffs work”.
But it was Ms. Lobosco, not former President Donald Trump or Senator JD Vance, who published falsehoods. Ms. Lobosco wrote incorrectly that, “When the US puts a tariff on an imported good, the cost of the tariff comes directly out of the bank account of an American buyer.”
She also asserted as follows, emphasis in original:
“Facts First: Trump and Vance’s claims about how tariffs work are false. A tariff is a tax that is paid by US businesses – not other countries – when a foreign-made good arrives at the American border.”
Had she consulted any customs broker, or done a cursory glance at the website of prominent customs brokers, or spoken to a trade lawyer, she’d have quickly discovered that foreign businesses can become “importers” without even having to incorporate a subsidiary here.
Under customs law, foreign corporations are called “Non-Resident Importers”, and they have multiple options for paying tariffs directly to the U.S. government.
So this idea that tariffs are uniformly “paid by US businesses”, and that “the cost of the tariff comes directly out of the bank account of an American buyer” is categorically wrong.
When contacted by CPA, Ms. Lobosco said she’d consult with her editor. Subsequently, Ms. Lobosco’s article was stealthily updated to add the word “usually” before “comes directly out of the bank account of an American buyer.” Other assertions that U.S. businesses always pay the tariff remain, however, including the “Facts First” assertion at the beginning of the article.
How was a CNN Politics fact checker so badly informed? Look to the Tax Foundation, Cato Institute.
Anti-tariff economists, including the Tax Foundation’s Erica York who was quoted in Ms. Lobosco’s article, repeatedly and confidently assert the same fundamental error (see, e.g., here and here). Ms. York has done this despite being corrected multiple times.
The Tax Foundation isn’t alone in not understanding the legal mechanics of tariffs. The Cato Institute makes the same false assertion in a website publication ironically titled “Separating Tariff Facts from Tariff Fictions”. An infographic, excerpted, states that “By law, the importer located in Home [sic] must pay the widget tariff”.
Not only is their tariff claim legally wrong, but it ignores the reality of 21st century transnational enterprise.
Recall that Ms. Lobosco’s article referred to tariffs coming out of the bank account of “an American buyer”.
Free trade economists love to conjure up images of “trade” as if it were still the ancient world, where economic activity was all undertaken by arms-length individuals or small businesses with a clear, singular nationality. As if a swashbuckling buccaneer was loading up their galleon with wares purchased at the harbor market, getting ready to sail abroad and export them to foreign buyers.
This image of “trade” bears no relation to 21st century commerce. For example, the tariff debate in 2024 has focused heavily on automotive. While there are certainly a handful of exotic cars that are imported by individual “American buyers”, who are real people buying from unrelated foreign sellers, the vast majority of U.S. automotive imports consist of the ‘exporter’ and ‘importer’ being two parts of the same transnational enterprise.
For example, how many Americans (people, that is) would consider Chinese car giant BYD
“American”? No one. And that wouldn’t change even if people were told that BYD had a Delaware subsidiary, BYD Motors LLC, with an address in Pasadena, California.
BYD Motors LLC of Delaware/Pasadena is a “US importer”, mainly importing from BYD Shaoguan.
Under Ms. York and Ms. Lobosco’s framing, BYD Motors LLC is a poor tariff victim, that legally must pay all the cost of the tariff. In reality, BYD is a transnational enterprise, enjoying tremendous state subsidies from China, and its U.S. subsidiary is a loss generator while the company attempts to build a beachhead in America.
Insisting that U.S.-organized entities are legally required to pay the tariff happens to be flat-out wrong, and the framing that “American buyers” typically pay the tariff is equally wrong.
Can foreign countries pay tariffs? Absolutely.
Export subsidies are nothing new, they have been around for hundreds of years. During the Obama Administration, the United States sued China at the WTO for China’s “export base” program which provided cash grants for prioritized exports, including in the auto and auto parts industry. China, and many other foreign countries, absolutely provide cash to promote favored exports to reimburse them for tariffs that are imposed by other countries.
Mindlessly asserting that a “tariff is a tax that is paid by US businesses — not other countries” is about as logical as asserting that “closing costs of a house are paid from real estate lawyers’ escrow accounts — not home buyers”.
More Misrepresentations
Ms. Lobosco’s article asserts the U.S. International Trade Commission (USITC) found that “Americans have borne almost the entire cost of Trump’s tariffs on Chinese products.” This is categorically not what the USITC’s study found. Rather, across all affected sectors, the China tariffs lowered Chinese imports by 13%, increased U.S. production by 0.4% and increased prices of U.S. products by just 0.2%.
The USITC also found that tariffs boosted production in all twelve of the industries studied.
The Tax Foundation reflects the views of its transnational backers
The Tax Foundation’s Board members include employees of Procter & Gamble, Microsoft, Apple, and Amazon. All these companies fight to generally oppose any new revenues for the federal government, or at least attempt to steer policy makers to income tax implementations that allow them to continue to seclude profits off-shore in tax havens.
They hate tariffs, because tariffs are a lot harder to dodge than income taxes. Unfortunately, they can use all that money to fund think tanks and media who will launder their policy positions as independent expert advice.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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