Economists are not fans of tariffs. There, the newsletter is coming out the gate with some hot takes! Meanwhile, regular people think tariffs are good for jobs. At the very least, they may ask, “What’s the big deal? It’s just a tax on imports. We need taxes to fix the deficit.”

To be clear, economists as a group don’t have the same reaction to other taxes. If a politician wants to raise the income tax, you’ll have a more balanced disagreement among economists. But tariffs? As Jason Furman put it,

Economists, including me, suffer from tariff derangement syndrome. We find ourselves disproportionately worked up every time they are increased.

So why do economists have such a visceral reaction to tariffs? I can’t speak for all economists, but I conjecture it is because tariffs violate basically all the principles of taxation that economists have developed over the past century plus.

The goal of this week’s newsletter is to explain that seemingly disproportionate reaction by focusing on why tariffs are a uniquely bad way to raise revenue. This isn’t about Trump or any specific policy proposal. Instead, it will be a general walk-through of the basics of taxation using simple models. If you want the empirical work, we have lots of other pieces on Economic Forces.

To understand the deep-seated skepticism economists have for tariffs, it helps to build our thinking from the ground up. Let’s not jump straight into the complexities of international trade and the modern models. I don’t think that’s what most economists use to think about tariffs. Instead, let’s imagine a few simple “toy” economies. By gradually adding realistic features, we can triangulate how tariffs go wrong as a way to raise money for the government.

Reason 1: Tariffs distort consumption

Let’s begin with the simplest possible economy. Imagine two islands, “Home” and “Foreign.” At Home, coconuts magically fall from the sky. In Foreign, bananas do the same. Naturally, the two islands trade. Two bananas trade for one coconut.

The government at Home needs to collect resources to fund public services, like building a seawall. What’s the best way to do this? By “best,” I mean what the people would prefer. I’m not worried about people disagreeing at this point.

The best, or if you want “efficient,” tax would be a broad consumption tax: a tax on both the coconuts consumed at Home and the imported bananas. ...