r/AskEconomics • u/Loud-Rule-9334 • Feb 27 '25
Approved Answers Why do countries impose retaliatory tariffs?
It seems like when the United States imposes tariffs on a country that country will impose tariffs on the United States. But what is the reason for this? Since tariffs are borne by the importing country there should be no cost to the exporting country, at least not initially if and until the importing country starts sourcing those product elsewhere. By imposing retaliatory tariffs on America product the other country is only increasing costs for its citizens.
So are retaliatory tariffs mostly done because countries feel like they have to respond even if it's not very beneficial? Wouldn't it be a flex for say, Canada, to say, hey we're not going to respond with tariffs because ultimately just makes things for expensive for Americans?
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u/Magdaki Feb 27 '25
Tariffs hurt both sides. Steel tariffs, for example, will make steel more expensive for Americans, but it will also hurt Canadian steel makers. So a retaliatory tariffs are done to ensure that the side starting the trade war feels some pain. They're usually targeted politically more so than economically. That is to say, Trump might put steel tariffs to hypothetically economically boost US steel manufacturers. Canada responds with Kentucky liquor and Florida oranges, not to boost Canadian orange production (we don't have any) but to hurt Trump supporting states.
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u/TGrumms Feb 28 '25
For your Canada example, those are also chosen because there exists a viable Canadian alternative in rye whiskey and Canadian produced OJ made with South American oranges respectively
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u/SlowRolledSam Apr 04 '25
I am genuinely trying to understand how this works... the American Left says American steel importers just pass this tariff cost onto the American people, so how do Canadian steel makers get hurt?
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u/Magdaki Apr 04 '25
Americans will buy less Canadian steel, which harms Canadian steel manufacturers unless they can find another buyer, which is not always easy on short notice. When you've had such a long and productive relationship, you kind of expect things to carry on. So the tariffs are very disruptive to these relationships for both sides. American manufacturers suddenly need to find new supplies of steel, and Canadian steel makers have to find a new place to sell.
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u/Knight_Machiavelli Apr 07 '25
They can try to pass the cost on to consumers but raising the price would decrease demand for products made with steel. In turn, companies are buying less steel from Canadian steelmakers since they're not selling as much product and therefore don't need as much steel.
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u/GurProfessional9534 Feb 27 '25
Of course there is a cost to the exporting country. It lowers demand for their products. Retaliatory tariffs are to dissuade other countries from putting tariffs on their exports.
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u/AftyOfTheUK Feb 27 '25
Since tariffs are borne by the importing country there should be no cost to the exporting country
The cost is in a reduction in exports.
While the actual tariff payments are made by actors in the tariff-imposing country, the producing country is likely to see their volume drop, as goods from other countries (including the country they are exporting to) become more cost competitive.
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u/Legitimate_Buy_919 Feb 27 '25
It's done for political reasons. When George W. put tariffs on Europe, they responded by putting tariffs targeting republican states. Eventually business owners and workers from those states started putting pressure on their representatives who then put pressure on Bush to have the tariffs removed and to work out a deal.
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Feb 27 '25 edited Jan 12 '26
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Mar 03 '25
Seems far more likely the retaliatory tariffs result in your domestic market seeking alternative suppliers, not just tariffing to get the other guy back.
Trump tariff China, China tariffs US soy, now China gets most of the soy it got from the US from Brazil instead. The retaliatory tariff worked as an incentive to shift the nations supply chain to a supplier that wasn't playing the tariff game and once they shift simply dropping the tariff is often not enough to get them back since once the new supply chain is setup and working it's usually more expensive to switch it back anyway.
It will depend a lot on the product too, some things are easier to ship than others and some things are in higher supply. If you're smart you retaliatory tariff something your people can rather easily get elsewhere for the same price or cheaper.
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Mar 03 '25 edited Jan 13 '26
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u/fauxfarmer17 Feb 28 '25
When W. placed steel tariffs on the EU in order to gain the votes of the rust belt, the EU placed counter tariffs on US citrus. Turned out that for every steelworker helped something like 35 citrus growers were hurt. He was forced to drop the original tariff.
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u/TheAzureMage Feb 27 '25
Lack of trade hurts both parties to some degree. Yes, ones own citizens directly pay the tarriffs, but loss of a market is still undesirable.
So, there's a desire to do some sort of tit for tat, even if it's not wholly effective. People want to "get back" at whoever is making life worse, even if that reaction makes the worsening greater. It can be useful in so much as it is a disincentive to engaging in tariffs and trade wars to begin with, but the back and forth tit for tat will not improve wealth, that much is correct.
Venegance isn't something that is wholly economically rational, but it *can* be considered as a means of disincentive. If you know that your trade partner will respond as you do, you are incentivized to deal fairly with them. So, as a long term strategy, there is a certain perspective that somewhat makes sense.
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u/No_March_5371 Feb 27 '25
The country enacting a tariff hurts themselves and the other country or countries. The country retaliating hurts themselves and the country that started it.
The point of retaliatory tariffs is to increase the hurt experienced by the country enacting the tariffs to begin with so that, next time they or someone else is considering enacting tariffs, they'll consider the retaliation to be part of the cost and will be less likely to start enacting tariffs in the first place.