Tariffs Are Taxes

 

The headline (on CNN) reads "US threatens tariffs on $11 billion of European goods over Airbus subsidies".  You can almost hear poorly-educated American viewers cheering and imagine them fist-bumping each other.  Yeah, man, we'll make those Europeans sorry for unfairly competing!

It pains me — almost pains me — to have to tell these good people that the only ones 'paying' will be Americans.

Did I just see your eyebrow lift?  Are you skeptical that Americans will pay for this?  Perhaps you don't understand how tariffs work.  Lemme 'splain dis to dju, Lucy.

In the first place, European governments subsidize Airbus so that Airbus can sell its product at a slightly reduced price — below the price their cost structure would normally dictate — and not just to us...  to everyone.  The money for that subsidy came from European taxpayers.  The EU is taxing their own people so that Airbus can sell us (and everyone else) cut-rate aircraft.

The effect of that is that Airbus planes become slightly more attractive because of their lower price tag, and Boeing aircraft consequently become slightly less attractive.  Those beasts!

To equalize this situation (heh heh heh) the U.S. government levies a tariff on Airbus aircraft.  The tariff jacks the price of Airbus product back to where it would normally be (or perhaps a little higher) for potential buyers, thereby removing the price advantage and making Boeing more financially attractive again.  Understand, that tariff is paid by whoever buys an Airbus aircraft: United, Delta, Continental — domestic airlines — and the tariff gets passed along in the ticket price to... why, to you!  It's almost like the U.S. government taxed you for flying on an Airbus plane!

So, now everyone who had bookkeeping in high school is whipping out paper and pencil and drawing T-accounts to make sense of all this.

• France taxes French taxpayers and gives the money to Airbus
• Airbus offers low-price airplanes to U.S. airline operators
• any airline operator who buy a low-price Airbus also pays a penalty — to the U.S. government
• the American consumer pays the penalty via ticket prices artificially boosted by the tariff
• any airline operator who buys a Boeing product instead also has to boost ticket prices because of Boeing's higher price

Who wins in this little game of three-card monte?  Airbus and Boeing and the U.S. government, of course.  You didn't actually think it was going to be you, did you?

You can thank CNN later for not bursting your bubble.  I'll take the blame for that.