Domestic Policy Practice Test

Tariffs act as a tax on imports, making overseas goods more expensive for buyers. The main downside is that this price increase spreads to consumers, raising the cost of goods and reducing consumer purchasing power. That higher price reduces overall welfare because people can buy less with the same income, and it often hits lower‑income households hardest. While tariffs can help domestic producers by shielding them from cheaper foreign competition and can raise government revenue, those benefits come with higher prices for everyday items and potential retaliation that can hurt other parts of the economy. Tariffs limit free trade rather than promote it, which is why the effect described—higher consumer prices—is the clearest con.