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Monday, March 3, 2025

United States Agency for International Development

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/United_States_Agency_for_International_Development

cy for International Development (USAID) is an independent agency of the United States government responsible for administering civilian foreign aid and development assistance. Established in 1961 by President John F. Kennedy to unite several foreign assistance organizations and programs under one agency, statute law places USAID under "the direct authority and policy guidance of the Secretary of State". It implements programs in global health, disaster relief, socioeconomic development, environmental protection, democratic governance and education. With average annual disbursements of about $23bn since 2001, USAID has been one of the world's largest aid agencies and accounts for most U.S. foreign assistance – the highest in the world in absolute dollar terms. USAID has missions in over 100 countries, primarily in Africa, Asia, Latin America, the Middle East, and Eastern Europe.

USAID has faced scrutiny over its role in political operations of influence abroad and potential conflicts of interest. In January 2025, the Trump administration ordered a near-total freeze on foreign aid, making false and misleading allegations of wasteful spending and fraud and planning to reduce employee numbers from around 10,000 to 290. Elon Musk, who has been carrying out Trump's cost-cutting agenda as a special government employee through the Department of Government Efficiency, announced the intention of shutting down USAID. The legality of Trump's order was contested, and a federal court issued a temporary restraining order pausing staff reductions.

Creation

Congress passed the Foreign Assistance Act on September 4, 1961, which reorganized U.S. foreign assistance programs and mandated the creation of an agency to administer economic aid. The goal of this agency was to counter Soviet Union influence during the Cold War and to advance US soft power through socioeconomic development. USAID was subsequently established by the executive order of President John F. Kennedy, who sought to unite several existing foreign assistance organizations and programs under one agency.

Congress authorizes USAID's programs in the Foreign Assistance Act, which Congress supplements through directions in annual funding appropriation acts and other legislation. As an official component of U.S. foreign policy, USAID operates subject to the guidance of the president, secretary of state, and the National Security Council.

Congress also passed the Foreign Affairs Reform and Restructuring Act of 1998, which established USAID as an "independent establishment" outside of the U.S. Department of State.

History

When the U.S. government created USAID in November 1961, it built on a legacy of previous development-assistance agencies and their people, budgets, and operating procedures. USAID's predecessor agency was already substantial, with 6,400 U.S. staff in developing-country field missions in 1961. Except for the peak years of the Vietnam War, 1965–70, that was more U.S. field staff than USAID would have in the future, and triple the number USAID has had in field missions in the years since 2000.

After his inauguration as president on January 20, 1961, John F. Kennedy created the Peace Corps by Executive Order on March 1, 1961. On March 22, he sent a special message to Congress on foreign aid, asserting that the 1960s should be a "Decade of Development" and proposing to unify U.S. development assistance administration into a single agency. He sent a proposed "Act for International Development" to Congress in May and the resulting "Foreign Assistance Act" was approved in September, repealing the Mutual Security Act. In November, Kennedy signed the act and issued an Executive Order tasking the Secretary of State to create, within the State Department, the "Agency for International Development" (or A.I.D.: subsequently re-branded as USAID), as the successor to both ICA and the Development Loan Fund. With these actions, the U.S. created a permanent agency working with administrative autonomy under the policy guidance of the State Department to implement, through resident field missions, a global program of both technical and financial development assistance for low-income countries. This structure has continued to date.

Second Trump administration

Taping over a USAID sign at the Ronald Reagan Building in Washington, DC on February 7, 2025

In 2024, USAID's Inspector General had launched a probe into Starlink, which is operated by Musk; this led to concerns that Musk’s role in the agency's downsizing constituted a conflict of interest.

On January 24, 2025, President Donald Trump ordered a near-total freeze on all foreign aid. Several days later, Secretary of State Marco Rubio issued a waiver for humanitarian aid. Despite the waiver, there was still much confusion about what agencies should do. More than 1,000 USAID employees and contractors were fired or furloughed following the near-total freeze on U.S. global assistance that the second Trump administration implemented. Matt Hopson, the USAID chief of staff appointed by the Trump administration, resigned.

On January 27, 2025, the agency's official government website was shut down. On February 3, 2025, Elon Musk, who has been carrying out parts of Trump's cost-cutting agenda, announced that he and Trump were in the process of shutting down USAID, claiming it to be a "criminal organization" and that it was "beyond repair". Also on February 3, Secretary of State Marco Rubio announced that he had been appointed Acting Administrator of USAID by Trump and that the agency was being merged into the State Department. The legality of these actions is disputed given the mandate for its creation in the Foreign Assistance Act.

It was announced that on February 6, 2025, at 11:59 pm (EST) all USAID direct hire personnel would be placed on administrative leave globally, with the exception of designated personnel responsible for mission-critical functions, core leadership and specially designated programs. By the evening of February 6, reports had emerged indicating that the total number of employees to be retained was 294, out of a total of more than 10,000. Trump declared that agency leaders were "radical left lunatics", while the State Department ordered them to halt virtually all their projects, even if that meant ceasing programs that helped to eradicate smallpox and prevented millions of HIV cases. The freeze in HIV relief programs, including PEPFAR, is estimated to jeopardize treatment access for 20 million people, including 500,000 children. This drastic action led to sudden pauses in over 30 clinical trials for ailments such as HIV, malaria, cholera, cervical cancer, and tuberculosis, leaving participants with medical devices in their bodies and cut off from researchers, likely going against the principles of the Declaration of Helsinki. It also led to a pause in other efforts such as wartime help in Ukraine, hospital assistance in Syria, education programs in Mali, and conservation efforts in the Amazon. In a statement explaining the threat to billions of dollars the agency spends on American businesses, the American Farm Bureau Federation said, "AID plays a critical role in reducing hunger around the world while sourcing markets for the surplus foods America’s farmers and ranchers grow".

The action of the Trump administration also caused frustration among conservatives. Andrew Natsios, the administrator for USAID during the George W. Bush administration, told PBS that, "With all due respect, none of these people know anything about AID. What does Musk know about international development? Absolutely nothing. He has a bunch of young kids in their 20s. They don't know. They're techies. They don't know anything about international development. They don't know anything about the Global South. They don't know anything about these — the programs and policies of the agency. AID is the most pro-business and pro-market of all aid agencies in the world. I can tell you that categorically. I am a conservative Republican. I'm not a liberal. And I have served in repeated Republican administrations."

Lawsuits

A lawsuit was filed on February 6 by the American Foreign Service Association and the American Federation of Government Employees in the United States District Court for the District of Columbia on February 6, requesting a temporary restraining order and preliminary injunction against the administration, claiming that it violated separation of powers, the Take Care Clause of the Constitution, and the Administrative Procedure Act and requesting that all attempts to shut down the agency be halted, all recent actions be reversed, and a new acting director be appointed. The following day, U.S. District Judge Carl Nichols, nominated by President Trump in 2019, stated from the bench that he would enter in a "temporary restraining order", pausing the plan to put thousands of employees on leave and pausing the accelerated removal of workers from their posts abroad.

On February 21, Judge Nichols cleared the way for the Trump administration to move forward with pulling thousands of USAID staffers off the job in the United States and around the world, as part of an administration plan to also provide those abroad with a 30-day deadline to move back to the U.S. at government expense. Nichols had previously argued that Trump's actions threaten the safety of USAID workers abroad because many are deployed in unstable regions.


Case Court Case no.(s) First filing date Outcome Notes
American Foreign Service Association, et al. v. Trump, et al. U.S. District Court for the District of Columbia 1:25-cv-00352 February 6, 2025

AIDS Vaccine Advocacy Coalition, et al. v. United States Department of State, et al. U.S. District Court for the District of Columbia 1:25-cv-00400 February 10, 2025

Global Health Council, et al. v. Trump, et al. U.S. District Court for the District of Columbia 1:25-cv-00402 February 11, 2025

Personal Services Contractor Association v. Trump, et al. U.S. District Court for the District of Columbia 1:25-cv-00469 February 18, 2025

Purposes

USAID's decentralized network of resident field missions is drawn on to manage U.S. government programs in low-income countries for various purposes.

  • Disaster relief
  • Poverty relief
  • Technical cooperation on global issues, including the environment
  • U.S. bilateral interests
  • Socioeconomic development

Disaster relief

USAID packages are delivered by United States Coast Guard personnel.

Some of the U.S. government's earliest foreign aid programs provided relief in war-created crises. In 1915, U.S. government assistance through the Commission for Relief in Belgium headed by Herbert Hoover prevented starvation in Belgium after the German invasion. After 1945, the European Recovery Program championed by Secretary of State George Marshall (the "Marshall Plan") helped rebuild war-torn Western Europe.

Poverty relief

Early reading and literacy programs contribute to long-term development, USAID Nigeria.

After 1945, many newly independent countries needed assistance to relieve the chronic deprivation afflicting their low-income populations. USAID and its predecessor agencies have continuously provided poverty relief in many forms, including assistance to public health and education services targeted at the poorest. USAID has also helped manage food aid provided by the U.S. Department of Agriculture. Also, USAID provides funding to NGOs to supplement private donations in relieving chronic poverty.

Global issues

Technical cooperation between nations is essential for addressing a range of cross-border concerns like communicable diseases, environmental issues, trade and investment cooperation, safety standards for traded products, money laundering, and so forth. The United States has specialized federal agencies dealing with such areas, such as the Centers for Disease Control and the Environmental Protection Agency. USAID's special ability to administer programs in low-income countries supports these and other U.S. government agencies' international work on global concerns.

Environment

Among these global interests, environmental issues attract high attention. USAID assists projects that conserve and protect threatened land, water, forests, and wildlife. USAID also assists projects in reducing greenhouse gas emissions and building resilience to the risks associated with global climate change. U.S. environmental regulation laws require that programs sponsored by USAID should be both economically and environmentally sustainable.

U.S. national interests

Congress appropriates exceptional financial assistance to allies to support U.S. geopolitical interests, mainly in the form of "Economic Support Funds" (ESF). USAID is called on to administer the bulk (90%) of ESF and is instructed: "To the maximum extent feasible, [to] provide [ESF] assistance ... consistent with the policy directions, purposes, and programs of [development assistance]."

Also, when U.S. troops are in the field, USAID can supplement the "Civil Affairs" programs that the U.S. military conducts to win the friendship of local populations. In these circumstances, USAID may be directed by specially appointed diplomatic officials of the State Department, as has been done in Afghanistan and Pakistan during operations against al-Qaeda.

U.S. commercial interests are served by U.S. law's requirement that most goods and services financed by USAID must be sourced from U.S. vendors. American farms supplied about 41 percent of the food aid according to a 2021 report by the Congressional Research Service.

Socioeconomic development

To help low-income nations achieve self-sustaining socioeconomic development, USAID assists them in improving the management of their own resources. USAID's assistance for socioeconomic development mainly provides technical advice, training, scholarships, commodities, and financial assistance. Through grants and contracts, USAID mobilizes the technical resources of the private sector and other U.S. government agencies, universities, and NGOs to participate in this assistance.

Programs of the various types above frequently reinforce one another. For example, the Foreign Assistance Act requires USAID to use funds appropriated for geopolitical purposes ("Economic Support Funds") to support socioeconomic development to the maximum extent possible.

Modes of assistance

USAID delivers both technical and financial assistance:

Technical assistance

Technical assistance includes technical advice, training, scholarships, construction, and commodities. USAID contracts or procures technical assistance and provides it in-kind to recipients. For technical advisory services, USAID draws on experts from the private sector, mainly from the assisted country's pool of expertise and from specialized U.S. government agencies. Many host-government leaders have drawn on USAID's technical assistance to develop IT systems and procure computer hardware to strengthen their institutions.

To build indigenous expertise and leadership, USAID finances scholarships to U.S. universities and assists in the strengthening of developing countries' universities. Local universities' programs in developmentally important sectors are assisted directly and through USAID support for forming partnerships with U.S. universities.

The various forms of technical assistance are frequently coordinated as capacity-building packages for the development of local institutions.

Financial assistance

National Open Source Software Competition – USAID financial assistance for groups developing technology in Indonesia

Financial assistance supplies cash to developing country organizations to supplement their budgets. USAID also provides financial assistance to local and international NGOs who in turn give technical assistance in developing countries. Although USAID formerly provided loans, all financial assistance is now provided in the form of non-reimbursable grants.

In recent years, the United States has increased its emphasis on financial rather than technical assistance. In 2004, the Bush administration created the Millennium Challenge Corporation as a new foreign aid agency that is mainly restricted to providing financial assistance. In 2009, the Obama administration initiated a major realignment of USAID's own programs to emphasize financial assistance, referring to it as "government-to-government" or "G2G" assistance.

Public–private partnerships

In April 2023, USAID and the Global Food Safety Initiative (GFSI) announced a memorandum of understanding (MOU) to improve food safety and sustainable food systems in Africa. GFSI's work in benchmarking and standard harmonisation aims to foster mutual acceptance of GFSI-recognized certification programmes for the food industry.

Organization

USAID is organized around country development programs managed by resident USAID offices in developing countries ("USAID missions"), supported by USAID's global headquarters in Washington, D.C.

Country development programs

USAID plans its work in each country around an individual country development program managed by a resident office called a "mission". The USAID mission and its U.S. staff are guests in the country, with a status that is usually defined by a "framework bilateral agreement" between the government of the United States and the host government. Framework bilaterals give the mission and its U.S. staff privileges similar to (but not necessarily the same as) those accorded to the U.S. embassy and diplomats by the Vienna Convention on Diplomatic Relations of 1961.

USAID missions work in over fifty countries, consulting with their governments and non-governmental organizations to identify programs that will receive USAID's assistance. As part of this process, USAID missions conduct socio-economic analysis, discuss projects with host-country leaders, design assistance to those projects, award contracts and grants, administer assistance (including evaluation and reporting), and manage flows of funds.

As countries develop and need less assistance, USAID shrinks and ultimately closes its resident missions. USAID has closed missions in a number of countries that had achieved a substantial level of prosperity, including South Korea, Turkey, and Costa Rica.

USAID also closes missions when requested by host countries for political reasons. In September 2012, the U.S. closed USAID/Russia at that country's request. Its mission in Moscow had been in operation for two decades. On May 1, 2013, the president of Bolivia, Evo Morales, asked USAID to close its mission, which had worked in the country for 49 years. The closure was completed on September 20, 2013.

USAID missions are led by mission directors and are staffed both by USAID Foreign Service officers and by development professionals from the country itself, with the host-country professionals forming the majority of the staff. The length of a Foreign service officer's "tour" in most countries is four years, to provide enough time to develop in-depth knowledge about the country. (Shorter tours of one or two years are usual in countries of exceptional hardship or danger.)

The mission director is a member of the U.S. Embassy's "Country Team" under the direction of the U.S. ambassador. As a USAID mission works in an unclassified environment with relative frequent public interaction, most missions were initially located in independent offices in the business districts of capital cities. Since the passage of the Foreign Affairs Agencies Consolidation Act in 1998 and the bombings of U.S. Embassy chanceries in East Africa in the same year, missions have gradually been moved into U.S. Embassy chancery compounds.

USAID/Washington

Samantha Power, USAID Administrator under President Biden

The country programs are supported by USAID's headquarters in Washington, D.C., "USAID/Washington", where about half of USAID's Foreign Service officers work on rotation from foreign assignments, alongside USAID's Civil Service staff and top leadership.

USAID is headed by an administrator. Under the Biden administration, the administrator became a regular attendee of the National Security Council.

USAID/Washington helps define overall federal civilian foreign assistance policy and budgets, working with the State Department, Congress, and other U.S. government agencies. It is organized into "Bureaus" covering geographical areas, development subject areas, and administrative functions. Each bureau is headed by an assistant administrator appointed by the president.

(Some tasks similar to those of USAID's Bureaus are performed by what are termed "Independent Offices".)

  • Geographic bureaus
    • AFR – Africa
    • ASIA – Asia
    • LAC – Latin America & the Caribbean
    • E&E – Europe and Eurasia
    • ME – the Middle East
  • Subject-area bureaus
    • GH – Global Health
      • Every year, the Global Health Bureau reports to the U.S. Congress through its Global Health Report to Congress. The Global Health Bureau also submits a yearly report on the Call to Action: ending preventable child and maternal deaths. This is part of USAID's follow-up to the 2012, where it committed to ending preventable child and maternal deaths in a generation with A Promise Renewed.
    • E3 – Economic Growth, Education, and the Environment
      • Economic Growth offices in E3 define Agency policy and provide technical support to Mission assistance activities in the areas of economic policy formulation, international trade, sectoral regulation, capital markets, microfinance, energy, infrastructure, land tenure, urban planning and property rights, gender equality and women's empowerment. The Engineering Division, in particular, draws on licensed professional engineers to support USAID Missions in a multibillion-dollar portfolio of construction projects, including medical facilities, schools, universities, roads, power plants, and water and sanitation plants.
      • The Education Office in E3 defines Agency policy and provides technical support to Mission assistance activities for both basic and tertiary education.
      • Environment offices in E3 define Agency policy and provide technical support to Mission assistance activities in the areas of climate change and biodiversity.
    • Bureau for Humanitarian Assistance
    • Bureau for Democracy, Human Rights and Governance
      • The mission of the DRG Bureau is to lead USAID's efforts to invigorate democracy, enhance human rights and justice, and bolster governance that advances the public interest and delivers inclusive development.
    • LAB – U.S. Global Development Lab
      • The Lab serves as an innovation hub, taking smart risks to test new ideas and partner within the Agency and with other actors to harness the power of innovative tools and approaches that accelerate development impact.
    • RFS – Resilience and Food Security
  • Headquarters bureaus
    • M – Management
    • OHCTM – Office of Human Capital and Talent Management
    • LPA – Legislative and Public Affairs
    • PPL – Policy, Planning, and Learning
    • BRM – Office of Budget and Resource Management

Independent oversight of USAID activities is provided by its Office of Inspector General, U.S. Agency for International Development, which conducts criminal and civil investigations, financial and performance audits, reviews, and inspections of USAID activities around the world.

Staffing

USAID's staffing reported to Congress in June 2016 totaled 10,235, including both field missions "overseas" (7,176) and the Washington, D.C. headquarters (3,059). Of this total, 1,850 were USAID Foreign Service officers who spend their careers mostly residing overseas (1,586 overseas in June 2016) and partly on rotation in Washington, D.C. (264). The Foreign Service officers stationed overseas worked alongside the 4,935 local staff of USAID's field missions.

Host-country staff normally work under one-year contracts that are renewed annually. Formerly, host-country staff could be recruited as "direct hires" in career positions and at present many host-country staff continue working with USAID missions for full careers on a series of one-year contracts. In USAID's management approach, local staff may fill highly responsible, professional roles in program design and management.

U.S. citizens can apply to become USAID Foreign Service officers by competing for specific job openings based on academic qualifications and experience in development programs. Within five years of recruitment, most Foreign Service officers receive tenure for an additional 20+ years of employment before mandatory retirement. Some are promoted to the Senior Foreign Service with extended tenure, subject to the Foreign Service's mandatory retirement age of 65. (This recruitment system differs from the State Department's use of the "Foreign Service Officer Test" to identify potential U.S. diplomats. Individuals who pass the test become candidates for the State Department's selection process, which emphasizes personal qualities in thirteen dimensions such as "Composure" and "Resourcefulness". No specific education level is required.)

In 2008, USAID launched the "Development Leadership Initiative" to reverse the decline in USAID's Foreign service officer staffing, which had fallen to a total of about 1,200 worldwide. Although USAID's goal was to double the number of Foreign Service officers to about 2,400 in 2012, actual recruitment net of attrition reached only 820 by the end of 2012. USAID's 2016 total of 1,850 Foreign Service officers compared with 13,000 in the State Department.

Field missions

Pakistani and U.S. Staff of USAID/Pakistan in 2009

While USAID can have as little presence in a country as a single person assigned to the U.S. Embassy, a full USAID mission in a larger country may have twenty or more USAID Foreign Service officers and a hundred or more professional and administrative employees from the country itself.

The USAID mission's staff is divided into specialized offices in three groups: (1) assistance management offices; (2) the mission director's and the Program office; and (3) the contracting, financial management, and facilities offices.

Assistance management offices

Called "technical" offices by USAID staff, these offices design and manage the technical and financial assistance that USAID provides to their local counterparts' projects. The technical offices that are frequently found in USAID missions include Health and Family Planning, Education, Environment, Democracy, and Economic Growth.

Health and Family Planning

Examples of projects assisted by missions' Health and Family Planning offices are projects for the eradication of communicable diseases, strengthening of public health systems focusing on maternal-child health including family planning services, HIV-AIDS monitoring, delivery of medical supplies including contraceptives, and coordination of Demographic and Health Surveys. This assistance is primarily targeted to the poor majority of the population and corresponds to USAID's poverty relief objective, as well as strengthening the basis for socio-economic development.

Education

USAID's Education offices mainly assist the national school system, emphasizing broadening the coverage of quality basic education to reach the entire population. Examples of projects often assisted by Education offices are projects for curriculum development, teacher training, and provision of improved textbooks and materials. Larger programs have included school construction. Education offices often manage scholarship programs for training in the U.S., while assistance to the country's universities and professional education institutions may be provided by Economic Growth and Health offices. The Education office's emphasis on school access for the poor majority of the population corresponds to USAID's poverty relief objective, as well as to the socioeconomic development objective in the long term.

Environment

Examples of projects assisted by environmental offices are projects for tropical forest conservation, protection of indigenous people's lands, regulation of marine fishing industries, pollution control, reduction of greenhouse gas emissions, and helping communities adapt to climate change. Environment assistance corresponds to USAID's objective of technical cooperation on global issues, as well as laying a sustainable basis for USAID's socioeconomic development objective in the long term.

USAID (United States Agency for International Development) has recently initiated the HEARTH (Health, Ecosystems and Agriculture for Resilient, Thriving Societies) program, which operates in 10 countries with 15 activities aimed at promoting conservation of threatened landscapes and enhancing community well-being by partnering with the private sector to align business goals with development objectives. Through HEARTH, USAID implements One Health principles to achieve sustainable benefits for both people and the environment through projects focused on livelihoods, well-being, conservation, biodiversity, and governance.

Democracy

Examples of projects assisted by Democracy offices are projects for the country's political institutions, including elections, political parties, legislatures, and human rights organizations. Counterparts include the judicial sector and civil society organizations that monitor government performance. Democracy assistance received its greatest impetus at the time of the creation of the successor states to the USSR starting in about 1990, corresponding both to USAID's objective of supporting U.S. bilateral interests and to USAID's socioeconomic development objective.

Economic Growth

A dried fruit vendor in Peshawar, Pakistan (2007)

Examples of projects often assisted by Economic Growth offices are projects for improvements in agricultural techniques and marketing (the mission may have a specialized "Agriculture" office), development of microfinance industries, streamlining of Customs administrations (to accelerate the growth of exporting industries), and modernization of government regulatory frameworks for the industry in various sectors (telecommunications, agriculture, and so forth). In USAID's early years and some larger programs, Economic Growth offices have financed economic infrastructure like roads and electrical power plants. Economic Growth assistance is thus quite diverse in terms of the range of sectors where it may work. It corresponds to USAID's socioeconomic development objective and is the source of sustainable poverty reduction. Economic Growth offices also occasionally manage assistance to poverty relief projects, such as to government programs that provide "cash transfer" payments to low-income families.

Special assistance

Some USAID missions have specialized technical offices for areas like counter-narcotics assistance or assistance in conflict zones.

Disaster assistance on a large scale is provided through USAID's Office of U.S. Foreign Disaster Assistance. Rather than having a permanent presence in country missions, this office has supplies pre-positioned in strategic locations to respond quickly to disasters when and where they occur.

The Office of the Mission Director and the Program Office

The mission director's signature authorizes technical offices to assist according to the designs and budgets they propose. With the help of the Program Office, the mission director ensures that designs are consistent with USAID policy for the country, including budgetary earmarks by which Washington directs that funds be used for certain general purposes such as public health or environmental conservation. The Program Office compiles combined reports to Washington to support budget requests to Congress and to verify that budgets were used as planned.

Contracting, financial management and management offices

While the mission director is the public face and key decision-maker for an impressive array of USAID technical capabilities, arguably the offices that make USAID preeminent among U.S. government agencies in the ability to follow through on assistance agreements in low-income countries are the "support" offices.

Contracting

Commitments of U.S. government funds to NGOs and firms that implement USAID's assistance programs can only be made in compliance with carefully designed contracts and grant agreements executed by warranted Contracting and agreement officers. The mission director is authorized to commit financial assistance directly to the country's government agencies.

Financial management

Funds can be committed only when the Mission's Controller certifies their availability for the stated purpose. "FM" offices assist technical offices in financial analysis and in developing detailed budgets for inputs needed by projects assisted. They evaluate potential recipients' management abilities before financial assistance can be authorized and then review implementers' expenditure reports with great care. This office often has the largest number of staff of any office in the mission.

Management

Called the "Executive Office" in USAID (sometimes leading to confusion with the Embassy's Executive Office, which is the office of the Ambassador), "EXO" provides operational support for mission offices, including human resources, information systems management, transportation, property, and procurement services. Increasing integration into Embassies' chancery complexes, and the State Department's recently increased role in providing support services to USAID, is expanding the importance of coordination between USAID's EXO and the embassy's Management section.

Budget

USAID managed foreign assistance disbursed by Fiscal Year ($ billions, inflation adjusted to 2023)

10
20
30
40
50
2001
2005
2010
2015
2020
2024
USAID-managed funding obligations estimate for 2023 from the Congressional Research Service. Congress had enacted large sums for Ukraine this year, leading to higher than normal Governance and European funding.
Countries with 1% or over of USAID managed foreign assistance disbursed in Fiscal Year 2023
Country US$ billion Share of total
Ukraine 16.02 36.6%
Global funds 6.06 13.8%
Ethiopia 1.68 3.8%
Jordan 1.20 2.7%
Afghanistan 1.09 2.5%
Somalia 1.05 2.4%
DR Congo 0.94 2.1%
Syria 0.89 2.0%
Nigeria 0.82 1.9%
Yemen 0.81 1.9%
South Sudan 0.74 1.7%
Kenya 0.68 1.6%
Uganda 0.52 1.2%
Mozambique 0.47 1.1%
Sudan 0.46 1.1%
Tanzania 0.45 1.0%

The Congressional Research Service (CRS) states that some USAID appropriations are programmed collaboratively with the Department of State, which makes any calculation of the USAID budget imprecise, and the CRS generally refers to USAID-managed funds. The CRS stated USAID managed more than $40 billion of combined appropriations in 2023, and had a workforce of more than 10,000. The mean average managed foreign assistance disbursed in the fiscal years 2001 to 2024 was $22.9 billion in inflation adjusted to 2023 dollars; 2023 was an exceptional year because of an extra $16 billion of funds for Ukraine.

The U.S. government USAspending.gov website included International Security Assistance, Special Assistance Initiatives and a small amount of other spending alongside direct USAID spending in its assessment of the 2023 $50.1 billion of budgetary resources available to USAID, about $10 billion more than the headline CRS assessment. International Security Assistance was budgeted about $9 billion in 2023, of which Foreign Military Financing to strengthen military support of key U.S. allies and partner governments was $6 billion.

In fiscal year 2022, the cost of supplying USAID's assistance includes the agency's "Operating Expenses" of $1.97 billion, and "Bilateral Economic Assistance" program costs of $25.01 billion (the vast bulk of which was administered by USAID). In fiscal year 2012, "Operating Expenses" were $1.53 billion, and "Bilateral Economic Assistance" was $20.83 billion.

U.S. assistance budget totals are shown along with other countries' total assistance budgets in tables in a webpage of the Organization for Economic Cooperation and Development.

At the Earth Summit in Rio de Janeiro in 1992, most of the world's governments adopted a program for action under the auspices of the United Nations Agenda 21, which included an Official Development Assistance (ODA) aid target of 0.7% of gross national product (GNP) for rich nations, specified as roughly 22 members of the OECD and known as the Development Assistance Committee (DAC). Most countries do not adhere to this target, as the OECD's table indicates that the DAC average ODA in 2011 was 0.31% of GNP. The U.S. figure for 2011 was 0.20% of GNP, which still left the U.S. as the largest single source of ODA among individual countries. According to the OECD, The United States' total official development assistance (ODA) (US$55.3 billion, preliminary data) increased in 2022, mainly due to support to Ukraine, as well as increased costs for in-donor refugees from Afghanistan. ODA represented 0.22% of gross national income (GNI).

Activities by region

Haiti

Following the January 2010 earthquake in Haiti, USAID helped provide safer housing for almost 200,000 displaced Haitians; supported vaccinations for more than 1 million people; cleared more than 1.3 million cubic meters of the approximately 10 million cubic meters of rubble generated; helped more than 10,000 farmers double the yields of staples like corn, beans, and sorghum; and provided short-term employment to more than 350,000 Haitians, injecting more than $19 million into the local economy. USAID has provided nearly $42 million to help combat cholera, helping to decrease the number of cases requiring hospitalization and reduce the case fatality rate.

Afghanistan

With American entry into Afghanistan in 2001, USAID worked with the Department of State and Department of Defense to coordinate reconstruction efforts.

Iraq

The interactions between USAID and other U.S. government agencies in the period of planning the Iraq operation of 2003 are described by the Office of the Special Inspector General for Iraq Reconstruction in its book Hard Lessons: The Iraq Reconstruction Experience.

Subsequently, USAID played a major role in the U.S. reconstruction and development effort in Iraq. As of June 2009, USAID had invested approximately $6.6 billion on programs designed to stabilize communities; foster economic and agricultural growth; and build the capacity of the national, local, and provincial governments to represent and respond to the needs of the Iraqi people.

In June 2003, C-SPAN followed USAID administrator Andrew Natsios as he toured Iraq. The special program C-SPAN produced aired over four nights.

Lebanon

USAID has periodically supported the Lebanese American University and the American University of Beirut financially, with major contributions to the Lebanese American University's Campaign for Excellence.

Europe

Ukraine

In the twenty years prior to the 2022 Russian invasion of Ukraine USAID dispersed modest funds, averaging $115 million, in Ukraine. Following the invasion Congress enacted large sums for Ukraine through USAID to support the operation of its government and civil society. In fiscal year 2022 nearly $9 billion was disbursed, and $16 billion in 2023 causing that year to be the highest total spending year for USAID with 36.6% of its managed funds being disbursed to Ukraine.

United Kingdom

USAID has donated funds to international charity BBC Media Action, with approximately $3.23 million (£2.6 million) given in 2024. This funding supports media development, journalism training, and public education initiatives in over 30 countries.

Cuba

A USAID subcontractor was arrested in Cuba in 2009 for distributing satellite equipment to provide Cubans with internet access. The subcontractor was released during Obama's second presidential term as part of the measures to improve relations between the two countries.

USAID has been used as a mechanism for "hastening transition", i.e., regime change in Cuba. Between 2009 and 2012, USAID ran a multimillion-dollar program, disguised as humanitarian aid and aimed at inciting rebellion in Cuba. The program consisted of two operations: one to establish an anti-regime social network called ZunZuneo, and the other to attract potential dissidents contacted by undercover operatives posing as tourists and aid workers.

USAID engineered a subversive program using social media aimed at fueling political unrest in Cuba to overthrow the Cuban government. On 3 April 2014 the Associated Press published an investigative report that revealed USAID was behind the creation of a social networking text messaging service aimed at creating political dissent and triggering an uprising against the Cuban government. The name of the messaging network was ZunZuneo, a Cuban slang term for a hummingbird's tweet and a play on "Twitter". According to the AP's report, the plan was to build an audience by initially presenting non-controversial content like sports, music and weather. Once a critical mass of users was reached the US government operators would change the content to spark political dissent and mobilize the users into organized political gatherings called "smart mobs" that would trigger an uprising against the Cuban government.

The messaging service was launched in 2010 and gained 40,000 followers at its peak. Extensive efforts were made to conceal the USAID involvement in the program, using offshore bank accounts, front companies and servers based overseas. According to a memo from one of the project's contractors, Mobile Accord: "There will be absolutely no mention of United States government involvement," "This is absolutely crucial for the long-term success of the service and to ensure the success of the Mission." ZunZuneo's subscribers were never aware that it was created by the US government or that USAID was gathering their private data to gain useful demographics that would gauge their levels of dissent and help USAID "maximize our possibilities to extend our reach".

USAID officials realized they needed an exit strategy to conceal their involvement in the program, at one point seeking funding from Twitter cofounder Jack Dorsey as part of a plan for it to go independent. The service was abruptly closed down around mid-2012, which USAID said was due to the program running out of money.

The ZunZuneo operation was part of a program that included a second operation which started in October 2009 and was financed jointly with ZunZuneo. In the second operation, USAID sent Venezuelan, Costa Rican and Peruvian children to Cuba to recruit Cubans into anti-regime political activities. The operatives posed as traveling aid workers and tourists. In one of the covert operations, the workers formed a HIV prevention workshop, which leaked memos called "the perfect excuse" for the programme's political goals. The Guardian said the operation could undermine US efforts to work toward improving health globally.

The operation was also criticized for putting the undercover operatives themselves at risk. The covert operatives were given limited training about evading Cuban authorities suspicious of their actions. After Alan Gross, a development specialist and USAID subcontractor, was arrested in Cuba, the US government warned USAID about the safety of covert operatives. Regardless of safety concerns, USAID refused to end the operation.

In light of the AP's report, Rajiv Shah, the head of USAID, testified before the Senate Appropriations State Department and Foreign Operations Subcommittee on 8 April 2014.

Bolivia

USAID operated in the coca-growing Chapare region, including under a 1983 agreement to support crop-substitution programs to encourage other crops. No later than 1998, this funding was conditional on farmers eradicating all their coca plants. In 2008, the coca growers union affiliated with Bolivian President Evo Morales ejected the 100 employees and contractors from USAID working in the Chapare region, citing frustration with U.S. efforts to persuade them to switch to growing unviable alternatives. Other rules, such as the requirement that participating communities declare themselves "terrorist-free zones" as required by U.S. law irritated people, said Kathryn Ledebur, director of the Andean Information Network. "Eradicate all your coca and then you grow an orange tree that will get fruit in eight years but you don't have anything to eat in the meantime? A bad idea. The thing about kicking out USAID, I don't think it's an anti-American sentiment overall but rather a rejection of bad programs."

Also in 2008, USAID's Bolivian programs under the Office of Transitional Initiatives and the Democracy Program, as well as separate funding by the National Endowment for Democracy, were the subject of critical investigative reports that documented them supporting political initiatives in regions governed by separatist movements. During the September 2008 political crisis, President Evo Morales expelled US Ambassador Philip S. Goldberg and spoke out against USAID interference. The US government had previously ended OTI spending in Bolivia and subsequently redirected Democracy Program funds to other purposes, while denying USAID had interfered in Bolivian politics.

President Evo Morales expelled USAID from Bolivia on May 1, 2013, for allegedly seeking to undermine his government following ten years of operations within the country. At the time, the USAID had seven American staffers and 37 Bolivian staffers in the country, with an annual budget of $26.7 million. President Morales explained that the expulsion was because USAID's objectives in Bolivia were to advance American interests, not to advance the interests of the Bolivian people. More specifically, President Morales noted the American "counter-narcotic" programs that harms the interests of Bolivian coca farmers who get caught in the middle of American operations.

Following the 2019 Bolivian political crisis that saw Jeanine Áñez's assumption of power, President Áñez invited USAID to return to Bolivia to provide "technical aid to the electoral process in Bolivia". In October 2020, USAID provided $700,000 in emergency assistance in fighting wildfires to the government of Luis Arce.

Brazil

During the Brazilian Military Dictatorship, the organization launched MEC-USAID Agreements [pt], responsible for transforming the Brazilian education politics closer to the USA. USAID also acted in the countries public security. Between 1960 and 1972, USAID trained cops that were involved in political repression in Brazil.

Folha de S.Paulo, Brazil's largest newspaper, accused USAID of trying to influence political reform in Brazil in a way that would have purposely benefited right-wing parties. USAID spent $95,000 US in 2005 on a seminar in the Brazilian Congress to promote a reform aimed at pushing for legislation punishing party infidelity. According to USAID papers acquired by Folha under the Freedom of Information Act, the seminar was planned to coincide with the eve of talks in that country's Congress on a broad political reform. The papers read that although the "pattern of weak party discipline is found across the political spectrum, it is somewhat less true of parties on the liberal left, such as the [ruling] Worker's Party." The papers also expressed a concern about the "'indigenization' of the conference so that it is not viewed as providing a U.S. perspective." The event's main sponsor was the International Republican Institute.

In February 2025, Michael Benz, a former state department official, affirmed in an interview with Steve Bannon on The War Room that Bolsonaro was seen in USAID as "Tropical Trump" and "if USAID didn't exist, Bolsonaro would still be the president of Brazil". In February 3, Eduardo Bolsonaro, federal deputy and son of Jair Bolsonaro, answered Benz in his social media by, accusing USAID of financing institutions involved with fighting against fake news during the presidential elections in 2022, such as the International Center for Journalists, Sleeping Giants Brazil and Vero Institute, created by the YouTuber Felipe Neto, with the objective of "manipulating narratives and interfering with Brazilian democracy". He and Gustavo Gayer also began to collect signatures to open a Parliamentary Inquiry Commission to investigate the supposed interference. His accusations are largely considered as fake news and many of the accused institutions affirmed that never received money from USAID. Shortly after, in a speech for the Ação Política Conservadora, president of Argentina Javier Milei alleged without evidence that USAID used millions of dollars to falsify the 2022 election.

East Africa

On September 19, 2011, USAID and the Ad Council launched the "Famine, War, and Drought" (FWD) campaign to raise awareness about that year's severe drought in East Africa. Through TV and internet ads as well as social media initiatives, FWD encouraged Americans to spread awareness about the crisis, support the humanitarian organizations that were conducting relief operations, and consult the Feed the Future global initiative for broader solutions. Celebrities Geena Davis, Uma Thurman, Josh Hartnett and Chanel Iman took part in the campaign via a series of Public Service Announcements. Corporations like Cargill, General Mills, and PepsiCo also signed on to support FWD.

Palestinian territories

USAID halted its assistance to the West Bank and Gaza Strip on January 31, 2019, reportedly at the request of the Palestinian Authority. The request was related to new U.S. legislation, the Anti-Terrorism Clarification Act of 2018, that exposed foreign aid recipients to anti-terrorism lawsuits. USAID restarted assistance to Palestinians in April 2021 under President Biden. The agency increased assistance during the Israel–Hamas war that began in October 2023. Since October 7, 2023, USAID gave more than $2.1 billion in assistance to Palestinians. On November 10, 2023, more than 1,000 USAID employees signed an open letter calling for an immediate ceasefire in the war.

Vietnam

USAID, alongside the Department of State and Defence, has supported NGOs to removing UXO and landmines, and remediating soil contaminated by Agent Orange from multiple regions in Vietnam, as well as supporting victims of Agent Orange.

Concerns and criticism

U.S. foreign economic assistance has been the subject of debate and criticism since at least the 1950s.

Non-career contracts

USAID frequently contracts with private firms or individuals for specialist services lasting from a few weeks to several years. It has long been asked whether USAID should more often assign such tasks to career U.S. government employees instead. United States government staff directly performed technical assistance in the earliest days of the program in the 1940s. It soon became necessary for the federal government technical experts to plan and manage larger assistance programs than they could perform by themselves. The global expansion of technical assistance in the early 1950s reinforced the need to draw on outside experts, which was also accelerated by Congress's requirement of major reductions of U.S. government staffing in 1953. By 1955, observers commented on a perceived shift toward re use of shorter-term contracts (rather than using employees with career-length contracts).

Financial conflicts of interest

USAID states that "U.S. foreign assistance has always had the twofold purpose of furthering America's foreign policy interests in expanding democracy and free markets while improving the lives of the citizens of the developing world." In 2008, a report found that approximately 40% of aid money spent in Afghanistan had returned to donor countries through corporate profits, consultants' salaries, and other costs.

Although USAID officially selects contractors on a competitive and objective basis, watchdog groups, politicians, foreign governments, and corporations have occasionally accused the agency of allowing its bidding process to be unduly influenced by the political and financial interests of its current presidential administration. Under the Bush administration, for instance, it emerged that all five implementing partners selected to bid on a $600 million Iraq reconstruction contract enjoyed close ties to the administration.

Political operations abroad

Critical graffiti on a USAID advertisement saying "We dont need your aid", West Bank, January 2007

William Blum has said that in the 1960s and early 1970s, USAID has maintained "a close working relationship with the CIA, and Agency officers often operated abroad under USAID cover." The 1960s-era Office of Public Safety, a now-disbanded division of USAID, has been mentioned as an example of this, having served as a front for training foreign police in counterinsurgency methods (including torture techniques).

In 2008, Benjamin Dangl wrote in The Progressive that the Bush administration was using USAID to fund efforts in Bolivia to "undermine the Morales government and coopt the country’s dynamic social movements – just as it has tried to do recently in Venezuela and traditionally throughout Latin America".

From 2010 to 2012, the agency operated ZunZuneo, a social media site similar to Twitter in an attempt to instigate uprisings against the Cuban government. Its involvement was concealed in order to ensure mission success. The plan was to draw in users with non-controversial content until a critical mass is reached, after which more political messaging would be introduced. At its peak, more than 40,000 unsuspecting Cubans interacted on the platform.

In the summer of 2012, ALBA countries (Venezuela, Cuba, Ecuador, Bolivia, Nicaragua, Saint Vincent and the Grenadines, Dominica, Antigua and Barbuda) called on its members to expel USAID from their countries.

Critics have accused USAID of being a tool for US interventionism. Additionally, the agency has been accused of covert political operations abroad, allegedly collaborating with the CIA on regime-change efforts and controversial funding decisions, leading to strained relations with some foreign governments.

Influence on the United Nations

Studies have found correlations between U.S. foreign aid levels and nations' membership on the United Nations Security Council, suggesting the use of aid to influence council votes.

In 1990, after Yemen voted against a resolution for a U.S.-led coalition to use force against Iraq, U.S. ambassador to the UN Thomas Pickering told Yemen's UN Ambassador Abdullah Saleh al-Ashtal, "That's the most expensive No vote you ever cast." Within days, USAID ceased operations and funding in Yemen.

State Department terrorist list

USAID requires NGOs to sign a document renouncing terrorism, as a condition of funding. Issam Abdul Rahman, media coordinator for the Palestinian Non-Governmental Organizations' Network, a body representing 135 NGOs in the West Bank and Gaza Strip, said his organization "takes issue with politically conditioned funding". Also, the Popular Front for the Liberation of Palestine, listed as a terrorist organization by the US Department of State, said that the USAID condition was nothing more than an attempt "to impose political solutions prepared in the kitchens of Western intelligence agencies to weaken the rights and principles of Palestinians, especially the right of return."

Renouncing prostitution and sex trafficking

In 2003, Congress passed a law providing U.S. government funds to private groups to help fight AIDS and other diseases all over the world through USAID grants. One of the conditions imposed by the law on grant recipients was a requirement to have "a policy explicitly opposing prostitution and sex trafficking". In 2013, the U.S. Supreme Court ruled in Agency for International Development v. Alliance for Open Society International, Inc. that the requirement violated the First Amendment's prohibition against compelled speech.

Involvement in Peru's forced sterilizations

For three decades, USAID has been the principal foreign donor to family planning in Peru. Until the 1990s, the Peruvian government's commitment to providing family planning services was limited. In 1998, concerns arose regarding the involvement of USAID in forced sterilization campaigns in Peru. Some far-right politicians in Washington opposed USAID's funding of family planning initiatives in the country. In January 1998, David Morrison, from the U.S.-based NGO Population Research Institute (PRI), traveled to Peru to investigate claims of human rights abuses related to these programs. During his visit, Morrison gathered testimony from Peruvian politicians and other figures opposed to family planning but did not meet with USAID officials in Peru. Upon his return to the United States, the PRI submitted its findings to U.S. Congressman Chris Smith, a member of the Republican Party, urging for the suspension of USAID's family planning efforts in Peru. Smith subsequently dispatched a member of his staff to Peru for further investigation.

In February 1998, another far-right U.S. organization, the Latin American Alliance for the Family, sent its director to Peru to examine the situation, again without consulting USAID officials. On February 25, 1998, a subcommittee of the U.S. House Committee on International Relations, chaired by Smith, held a hearing on "the Peruvian population control program". Allegations that USAID was funding forced sterilizations in Peru prompted Congressman Todd Tiahrt to introduce the "Tiahrt Amendment" in 1998. However, the subcommittee concluded that USAID's funding had not supported the abuses committed by the Peruvian government.

Office of Inspector General investigation into alleged terror-linked funding

According to a February 2024 report, the USAID's Office of Inspector General launched an investigation in 2023 into the agency for awarding $110,000 in 2021 to Helping Hand for Relief and Development (HHRD), a charity in Michigan that Republicans on the House Foreign Affairs Committee have accused in recent years of sharing ties to terrorism organizations in South Asia. In August 2023, USAID's Vetting Support Unit cleared HHRD to receive the grant. In 2024, researchers at George Mason University reported that allegations against HHRD were part of a campaign targeting large American Muslim charities based on the manipulation of poorly-sourced information.

Trump administration's claims of wasteful spending

Screenshot of USAID's webpage, 3 Feb. 2025

In 2025, the Trump administration accused USAID of "wasting massive sums of taxpayer money" over several decades, including during Trump's first presidency from 2017 to 2021. The administration cited a number of projects, including $1.5 million for LGBT workplace inclusion in Serbia, $2.5 million to build electric vehicle chargers in Vietnam, $6 million for tourism promotion in Egypt, and "hundreds of millions of dollars" (the largest item) purportedly allocated to discourage Afghanistan farmers from growing poppies for opium, which allegedly ended up supporting poppy cultivation and benefiting the Taliban. Fact checkers found that these claims were largely false, "highly misleading," or wrong.

On February 3, 2025, White House Press Secretary Karoline Leavitt criticized four expenditures putatively uncovered by DOGE. Fact-checkers found that several of the alleged wasteful grants were actually administered by the State Department, not USAID. U.S. District Judge Carl Nichols, in his February 2025 order blocking the Trump administration from placing certain USAID employees on leave, "noted that despite Trump's claim of massive 'corruption and fraud' in the agency, government lawyers had no support for that argument in court."

During Trump's first term, his daughter Ivanka Trump, who served as Advisor to the President, used over $11,000 from USAID in 2019 to purchase video recording and reproducing equipment for a White House event. Both Ivanka and then-First Lady Melania Trump had publicly praised USAID's work during the first Trump administration. Melania Trump visited Africa in 2018, speaking about USAID's efforts and stating, "We care, and we want to show the world that we care, and I’ve partnered and am working with USAID." Ivanka Trump also toured Africa on behalf of USAID, lauding her father's creation of the "Women's Global Development and Prosperity" initiative and emphasizing its alignment with U.S. national security interests.

In 2025, the White House's allegations of fraud led to a drastic reduction in USAID's staff from over 10,000 employees to fewer than 300. Critics, including former USAID administrators, decried this move, calling it "one of the worst and most costly foreign policy blunders in U.S. history", and have argued that the cuts will result in job losses, damage to American businesses, and harm to vulnerable populations worldwide. The Inspector General for USAID issued a report on the spending pause and staff furloughs noting that these actions limited USAID's efforts to assure that its distributed funds "do not benefit terrorists and their supporters."] The Inspector General also warned that $489 million in humanitarian food aid was at risk of spoiling due to staff furloughs and unclear guidance. The Office of Presidential Personnel fired the Inspector General the next day, despite a law requiring 30 days notice to Congress before firing an Inspector General.

Aid freeze victims

Pe Kha Lau, 71, died after she was discharged from a USAID-funded healthcare facility operated by the International Rescue Committee (IRC) while still relying on oxygen to survive. In the Umpiem Mai camp in Thailand, witnesses reported the deaths of multiple patients who too relied on oxygen. The IRC offered their condolences to the family and friends of Pe Kha Lau.

Christine Stegling, deputy executive director at UNAIDS, estimates that there could be a 400% increase in AIDS-related deaths around the world if PEPFAR is not formally reauthorized for USAID funding.

According to Pio Smith, UNFPA’s Asia-Pacific regional director, the USAID freeze could lead to 1,200 maternal deaths and 109,000 additional unwanted pregnancies in the next three years in Afghanistan.

Tariff

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Tariff

A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry. Protective tariffs are among the most widely used instruments of protectionism, along with import quotas and export quotas and other non-tariff barriers to trade.

Tariffs can be fixed (a constant sum per unit of imported goods or a percentage of the price) or variable (the amount varies according to the price). Tariffs on imports are designed to raise the price of imported goods and services to discourage consumption. The intention is for citizens to buy local products instead, thereby stimulating their country's economy. Tariffs therefore provide an incentive to develop production and replace imports with domestic products. Tariffs are meant to reduce pressure from foreign competition and reduce the trade deficit. They have historically been justified as a means to protect infant industries and to allow import substitution industrialisation (industrializing a nation by replacing imported goods with domestic production). Tariffs may also be used to rectify artificially low prices for certain imported goods, due to 'dumping', export subsidies or currency manipulation.

There is near unanimous consensus among economists that tariffs are self-defeating and have a negative effect on economic growth and economic welfare, while free trade and the reduction of trade barriers has a positive effect on economic growth. Although trade liberalisation can sometimes result in large and unequally distributed losses and gains, and can, in the short run, cause significant economic dislocation of workers in import-competing sectors, free trade has advantages of lowering costs of goods and services for both producers and consumers. The economic burden of tariffs falls on the importer, the exporter, and the consumer. Often intended to protect specific industries, tariffs can end up backfiring and harming the industries they were intended to protect through rising input costs and retaliatory tariffs. Import tariffs can also harm domestic exporters by disrupting their supply chains and raising their input costs.

Etymology

The English term tariff derives from the French: tarif, lit.'set price' which is itself a descendant of the Italian: tariffa, lit.'mandated price; schedule of taxes and customs' which derives from Medieval Latin: tariffe, lit.'set price'. This term was introduced to the Latin-speaking world through contact with the Turks and derives from the Ottoman Turkish: تعرفه, romanizedtaʿrife, lit.'list of prices; table of the rates of customs'. This Turkish term is a loanword of the Persian: تعرفه, romanizedtaʿrefe, lit.'set price, receipt'. The Persian term derives from Arabic: تعريف, romanizedtaʿrīf, lit.'notification; description; definition; announcement; assertion; inventory of fees to be paid' which is the verbal noun of Arabic: عرف, romanizedʿarafa, lit.'to know; to be able; to recognise; to find out'.

History

Ancient Greece

In the city state of Athens, the port of Piraeus enforced a system of levies to raise taxes for the Athenian government. Grain was a key commodity that was imported through the port, and Piraeus was one of the main ports in the east Mediterranean. A levy of two percent was placed on goods arriving in the market through the docks of Piraeus. The Athenian government also placed restrictions on the lending of money and transport of grain to only be allowed through the port of Piraeus.

Great Britain

In the 14th century, Edward III took interventionist measures, such as banning the import of woollen cloth in an attempt to develop local manufacturing. Beginning in 1489, Henry VII took actions such as increasing export duties on raw wool. The Tudor monarchs, especially Henry VIII and Elizabeth I, used protectionism, subsidies, distribution of monopoly rights, government-sponsored industrial espionage and other means of government intervention to develop the wool industry, leading to England became the largest wool-producing nation in the world.

A protectionist turning point in British economic policy came in 1721, when policies to promote manufacturing industries were introduced by Robert Walpole. These included, for example, increased tariffs on imported foreign manufactured goods, export subsidies, reduced tariffs on imported raw materials used for manufactured goods and the abolition of export duties on most manufactured goods. Thus, the UK was the first country to pursue a strategy of large-scale infant-industry development. These policies were similar to those used by countries such as Japan, Korea and Taiwan after the Second World War. Outlining his policy, Walpole declared:

Nothing contributes as much to the promotion of public welfare as the export of manufactured goods and the import of foreign raw materials.

Walpole's protectionist policies continued over the next century, helping British manufacturing catch up with and then leapfrog its continental counterparts. Britain remained a highly protectionist country until the mid-19th century. By 1820, the UK's average tariff rate on manufactured imports was 45-55%. Moreover, in its colonies, the UK imposed a total ban on advanced manufacturing activities that the country did not want to see developed. Walpole forced Americans to specialize in low-value-added products. The UK also banned exports from its colonies that competed with its own products at home and abroad. The country banned imports of cotton textiles from India, which at the time were superior to British products. It banned the export of woollen fabrics from its colonies to other countries (Wool Act). Finally, Britain wanted to ensure that the colonists stuck to the production of raw materials and never became a competitor to British manufacturers. Policies were established to encourage the production of raw materials in the colonies. Walpole granted export subsidies (on the American side) and abolished import taxes (on the British side) on raw materials produced in the American colonies. The colonies were thus forced to leave the most profitable industries in the hands of the United Kingdom.

In 1800, Britain, with about 10% of Europe's population, supplied 29% of all pig iron produced in Europe, a proportion that had risen to 45% by 1830. Per capita industrial production was even higher: in 1830 it was 250% higher than in the rest of Europe, up from 110% in 1800.

Protectionist policies of industrial promotion continued until the mid-19th century. At the beginning of that century, the average tariff on British manufactured goods was about 50%, the highest of all major European countries. Despite its growing technological lead over other nations, the UK continued its policy of industrial promotion until the mid-19th century, maintaining very high tariffs on manufactured goods until the 1820s, two generations after the start of the Industrial Revolution. Thus, according to economic historian Paul Bairoch, the UK's technological advance was achieved "behind high and durable tariff barriers". In 1846, the rate of industrialization per capita was more than double that of its closest competitors. Even after adopting free trade for most goods, Britain continued to closely regulate trade in strategic capital goods, such as machinery for the mass production of textiles.

Free trade in Britain began in earnest with the repeal of the Corn Laws in 1846, which was equivalent to free trade in grain. The Corn Acts had been passed in 1815 to restrict wheat imports and to guarantee the incomes of British farmers; their repeal devastated Britain's old rural economy, but began to mitigate the effects of the Great Famine in Ireland. Tariffs on many manufactured goods were also abolished. But while free-trade was progressing in Britain, protectionism continued on the European mainland and in the United States.

Customs duties on many manufactured goods were also abolished. The Navigation Acts were abolished in 1849 when free traders won the public debate in the UK. But while free trade progressed in the UK, protectionism continued on the Continent. The UK practiced free trade unilaterally in the vain hope that other countries would follow, but the USA emerged from the Civil War even more explicitly protectionist than before, Germany under Bismarck rejected free trade, and the rest of Europe followed suit.

After the 1870s, the British economy continued to grow, but inexorably lagged behind the protectionist United States and Germany: from 1870 to 1913, industrial production grew at an average annual rate of 4.7% in the USA, 4.1% in Germany and only 2.1% in Great Britain. Thus, Britain was finally overtaken economically by the United States around 1880. British leadership in fields such as steel and textiles was eroded, and the country fell behind as new, more technologically advanced industries emerged after 1870 in other countries still practicing protectionism.

On June 15, 1903, the Secretary of State for Foreign Affairs, Henry Petty-Fitzmaurice, 5th Marquess of Lansdowne, made a speech in the House of Lords in which he defended fiscal retaliation against countries that applied high tariffs and whose governments subsidised products sold in Britain (known as "premium products", later called "dumping"). The retaliation was to take the form of threats to impose duties in response to goods from that country. Liberal unionists had split from the liberals, who advocated free trade, and this speech marked a turning point in the group's slide toward protectionism. Lansdowne argued that the threat of retaliatory tariffs was similar to gaining respect in a room of gunmen by pointing a big gun (his exact words were "a gun a little bigger than everyone else's"). The "Big Revolver" became a slogan of the time, often used in speeches and cartoons.

In response to the Great Depression, Britain abandoned free trade in 1932, recognizing that it had lost production capacity to the United States and Germany, which remained protectionist. The country reintroduced large-scale tariffs, but it was too late to re-establish the nation's position as a dominant economic power. In 1932, the level of industrialization in the United States was 50% higher than in the United Kingdom.

United States

Average tariff rates (France, UK, US)
Average tariff rates in US (1821–2016)
US Trade Balance and Trade Policy (1895–2015)

Before the new Constitution took effect in 1788, the Congress could not levy taxes – it sold land or begged money from the states. The new national government needed revenue and decided to depend upon a tax on imports with the Tariff of 1789. The policy of the U.S. before 1860 was low tariffs "for revenue only" (since duties continued to fund the national government).

The Embargo Act of 1807 was passed by the U.S. Congress in that year in response to British aggression. While not a tariff per se, the Act prohibited the import of all kinds of manufactured imports, resulting in a huge drop in US trade and protests from all regions of the country. However, the embargo also had the effect of launching new, emerging US domestic industries across the board, particularly the textile industry, and marked the beginning of the manufacturing system in the United States.

An attempt at imposing a high tariff occurred in 1828, but the South denounced it as a "Tariff of Abominations" and it almost caused a rebellion in South Carolina until it was lowered.

Between 1816 and the end of the Second World War, the United States had one of the highest average tariff rates on manufactured imports in the world. According to Paul Bairoch, the United States was "the homeland and bastion of modern protectionism" during this period.

Many American intellectuals and politicians during the country's catching-up period felt that the free trade theory advocated by British classical economists was not suited to their country. They argued that the country should develop manufacturing industries and use government protection and subsidies for this purpose, as Britain had done before them. Many of the great American economists of the time, until the last quarter of the 19th century, were strong advocates of industrial protection: Daniel Raymond who influenced Friedrich List, Mathew Carey and his son Henry, who was one of Lincoln's economic advisers. The intellectual leader of this movement was Alexander Hamilton, the first Secretary of the Treasury of the United States (1789–1795). The United States rejected David Ricardo's theory of comparative advantage and protected its industry. The country pursued a protectionist policy from the beginning of the 19th century until the middle of the 20th century, after the Second World War.

In Report on Manufactures, considered the first text to express modern protectionist theory, Alexander Hamilton argued that if a country wished to develop a new activity on its soil, it would have to temporarily protect it. According to him, this protection against foreign producers could take the form of import duties or, in rare cases, prohibition of imports. He called for customs barriers to allow American industrial development and to help protect infant industries, including bounties (subsidies) derived in part from those tariffs. He also believed that duties on raw materials should be generally low. Hamilton argued that despite an initial "increase of price" caused by regulations that control foreign competition, once a "domestic manufacture has attained to perfection... it invariably becomes cheaper. In this report, Hamilton also proposed export bans on major raw materials, tariff reductions on industrial inputs, pricing and patenting of inventions, regulation of product standards and development of financial and transportation infrastructure. The U.S. Congress adopted the tariffs but refused to grant subsidies to manufactures. Hamilton's arguments shaped the pattern of American economic policy until the end of World War II, and his program created the conditions for rapid industrial development.

Alexander Hamilton and Daniel Raymond were among the first theorists to present the infant industry argument. Hamilton was the first to use the term "infant industries" and to introduce it to the forefront of economic thinking. Hamilton believed that political independence was predicated upon economic independence. Increasing the domestic supply of manufactured goods, particularly war materials, was seen as an issue of national security. And he feared that Britain's policy towards the colonies would condemn the United States to be only producers of agricultural products and raw materials.

Britain initially did not want to industrialise the American colonies, and implemented policies to that effect (for example, banning high value-added manufacturing activities). Under British rule, America was denied the use of tariffs to protect its new industries. This explains why, after independence, the Tariff Act of 1789 was the second bill of the Republic signed by President Washington allowing Congress to impose a fixed tariff of 5% on all imports, with a few exceptions.

The Congress passed a tariff act (1789), imposing a 5% flat rate tariff on all imports. Between 1792 and the war with Britain in 1812, the average tariff level remained around 12.5%, which was too low to encourage consumers to buy domestic products and thus support emerging American industries. When the Anglo-American War of 1812 broke out, all rates doubled to an average of 25% to account for increased government spending. The war paved the way for new industries by disrupting manufacturing imports from the UK and the rest of Europe. A major policy shift occurred in 1816, when American manufacturers who had benefited from the tariffs lobbied to retain them. New legislation was introduced to keep tariffs at the same levels —especially protected were cotton, woolen, and iron goods. The American industrial interests that had blossomed because of the tariff lobbied to keep it, and had it raised to 35 percent in 1816. The public approved, and by 1820, America's average tariff was up to 40 percent.

In the 19th century, statesmen such as Senator Henry Clay continued Hamilton's themes within the Whig Party under the name "American System" which consisted of protecting industries and developing infrastructure in explicit opposition to the "British system" of free trade. Before 1860 they were always defeated by the low-tariff Democrats.

From 1846 to 1861, American tariffs were lowered but this was followed by a series of recessions and the 1857 panic, which eventually led to higher demands for tariffs than President James Buchanan signed in 1861 (Morrill Tariff).

During the American Civil War (1861–1865), agrarian interests in the South were opposed to any protection, while manufacturing interests in the North wanted to maintain it. The war marked the triumph of the protectionists of the industrial states of the North over the free traders of the South. Abraham Lincoln was a protectionist like Henry Clay of the Whig Party, who advocated the "American system" based on infrastructure development and protectionism. In 1847, he declared: "Give us a protective tariff, and we will have the greatest nation on earth". Once elected, Lincoln implemented a 44-percent tariff during the Civil War—in part to pay for railroad subsidies and for the war effort, and to protect favored industries. After the war, tariffs remained at or above wartime levels. High tariffs were a policy designed to encourage rapid industrialisation and protect the high American wage rates.[31]

The policy from 1860 to 1933 was usually high protective tariffs (apart from 1913 to 1921). After 1890, the tariff on wool did affect an important industry, but otherwise the tariffs were designed to keep American wages high. The conservative Republican tradition, typified by William McKinley was a high tariff, while the Democrats typically called for a lower tariff to help consumers but they always failed until 1913.[35][36]

In the early 1860s, Europe and the United States pursued completely different trade policies. The 1860s were a period of growing protectionism in the United States, while the European free trade phase lasted from 1860 to 1892. The tariff average rate on imports of manufactured goods in 1875 was from 40% to 50% in the United States, against 9% to 12% in continental Europe at the height of free trade.

From 1871 to 1913, "the average U.S. tariff on dutiable imports never fell below 38 percent [and] gross national product (GNP) grew 4.3 percent annually, twice the pace in free trade Britain and well above the U.S. average in the 20th century," notes Alfred Eckes Jr, chairman of the U.S. International Trade Commission under President Reagan.

After the United States caught up with European industries in the 1890s, the Mckinley Tariff's argument was no longer to protect "infant industries", but to maintain workers' wages, support agricultural protection and the principle of reciprocity.

In 1896, the Republican Party platform pledged to "renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. This true American policy taxes foreign products and encourages home industry. It puts the burden of revenue on foreign goods; it secures the American market for the American producer. It upholds the American standard of wages for the American workingman".

In 1913, following the electoral victory of the Democrats in 1912, there was a significant reduction in the average tariff on manufactured goods from 44% to 25%. However, the First World War rendered this bill ineffective, and new "emergency" tariff legislation was introduced in 1922 after the Republicans returned to power in 1921.

According to economic historian Douglas Irwin, a common myth about United States trade policy is that low tariffs harmed American manufacturers in the early 19th century and then that high tariffs made the United States into a great industrial power in the late 19th century. A review by the Economist of Irwin's 2017 book Clashing over Commerce: A History of US Trade Policy notes:

Political dynamics would lead people to see a link between tariffs and the economic cycle that was not there. A boom would generate enough revenue for tariffs to fall, and when the bust came pressure would build to raise them again. By the time that happened, the economy would be recovering, giving the impression that tariff cuts caused the crash and the reverse generated the recovery. Mr Irwin also methodically debunks the idea that protectionism made America a great industrial power, a notion believed by some to offer lessons for developing countries today. As its share of global manufacturing powered from 23% in 1870 to 36% in 1913, the admittedly high tariffs of the time came with a cost, estimated at around 0.5% of GDP in the mid-1870s. In some industries, they might have sped up development by a few years. But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas.

The Economist Ha-Joon Chang argues, on the contrary, that the United States developed and rose to the top of the global economic hierarchy by adopting protectionism. In his view, the protectionist period corresponded to the golden age of American industry, when US economic performance outstripped that of the rest of the world. The U.S. adopted an interventionist policy to promote and protect their industries through tariffs. It was this protectionist policy that enabled the United States to achieve the fastest economic growth in the world throughout the 19th century and into the 1920s.

Tariffs and the Great Depression

Paul Krugman writes that protectionism does not lead to recessions. According to him, the decrease in imports (which can be obtained by introducing tariffs) has an expansive effect, that is, it is favourable to growth. Thus, in a trade war, since exports and imports will decrease equally, for everyone, the negative effect of a decrease in exports will be offset by the expansionary effect of a decrease in imports. Therefore, a trade war does not cause a recession. Furthermore, in his view, the Smoot-Hawley tariff did not cause the Great Depression and that the decline in trade between 1929 and 1933 "was almost entirely a consequence of the Depression, not a cause. Trade barriers were a response to the Depression".

According to the historian Paul Bairoch, the years 1920 to 1929 are generally misdescribed as years in which protectionism increased in Europe. Instead, he says that from a general point of view, the crisis was preceded in Europe by trade liberalisation. The weighted average of tariffs remained tendentially the same as in the years preceding the First World War: 24.6% in 1913, as against 24.9% in 1927. In 1928 and 1929, tariffs were lowered in almost all developed countries.

Douglas A. Irwin says most economists "doubt that Smoot–Hawley played much of a role in the subsequent contraction."

Nevertheless, The Economist observes that "... global trade fell by two-thirds. It was so catastrophic for growth in America and around the world that legislators have not touched the issue since. 'Smoot-Hawley' became synonymous with disastrous policy making".

Economist Milton Friedman argued that while the tariffs of 1930 caused harm, they were not responsible by themselves for the Great Depression. He placed greater blame on the lack of sufficient action on the part of the Federal Reserve. Peter Temin, an economist at the Massachusetts Institute of Technology, has agreed that the contractionary effect of the tariff was small.

According to William J. Bernstein, most economic historians now believe that only a fraction of the GDP loss worldwide and in the U.S. resulted from tariff wars. Bernstein argued that the decline "could not have exceeded 1 or 2% of world GDP, a far cry from the 17% recorded during the Great Depression."

Jacques Sapir argued that the crisis has other causes than protectionism. He points out that "domestic production in major industrialized countries is declining...faster than international trade is declining." If this decrease (in international trade) had been the cause of the depression that the countries have experienced, we would have seen the opposite". "Finally, the chronology of events does not correspond to the thesis of the free traders... The bulk of the contraction of trade occurred between January 1930 and July 1932, that is, before the introduction of protectionist measures, even self-sufficient, in some countries, with the exception of those applied in the United States in the summer of 1930, but with very limited negative effects. He noted that "the credit crunch is one of the main causes of the trade crunch." "In fact, international liquidity is the cause of the trade contraction. This liquidity collapsed in 1930 (-35.7%) and 1931 (-26.7%). A study by the National Bureau of Economic Research highlights the predominant influence of currency instability (which led to the international liquidity crisis) and the sudden rise in transportation costs in the decline of trade during the 1930s.

Other economists have contended that the record tariffs of the 1920s and early 1930s exacerbated the Great Depression in the U.S., in part because of retaliatory tariffs imposed by other countries on the United States.

Arguments favouring tariffs

Protection against dumping

States resorting to protectionism invoke unfair competition or dumping practices:

  • Monetary manipulation: a currency undergoes a devaluation when monetary authorities decide to intervene in the foreign exchange market to lower the value of the currency against other currencies. This makes local products more competitive and imported products more expensive (Marshall Lerner Condition), increasing exports and decreasing imports, and thus improving the trade balance. Countries with a weak currency cause trade imbalances: they have large external surpluses while their competitors have large deficits. For example, in 2010, Paul Krugman wrote that China pursues a mercantilist and predatory policy, i.e., it keeps its currency undervalued to accumulate trade surpluses by using capital flow controls. The Chinese government sells renminbi and buys foreign currency to keep the renminbi low, giving the Chinese manufacturing sector a cost advantage over its competitors. China's surpluses drain US demand and slow economic recovery in other countries with which China trades. Krugman writes: "This is the most distorted exchange rate policy any great nation has ever followed". He notes that an undervalued renminbi is tantamount to imposing high tariffs or providing export subsidies. A cheaper currency improves employment and competitiveness because it makes imports more expensive while making domestic products more attractive.
  • Tax dumping: some tax haven states have lower corporate and personal tax rates.
  • Social dumping: when a state reduces social contributions or maintains very low social standards. For example, in several U.S. states labor regulations are considerably lax and the laws that do exist are barely enforced (if at all). Thus employers can force vulnerable, migrant children into factory work for a fraction of the cost of legal adult labor. These children are often injured or killed.
  • Environmental dumping: when environmental regulations are less stringent than elsewhere. For example, the European Union starts its carbon border-adjustment mechanism in 2026 to even the playing field with firms not subject to European carbon pricing.

Protection of infant industry

According to the economists in favour of protecting industries, free trade would condemn developing countries to being nothing more than exporters of raw materials and importers of manufactured goods. The application of the theory of comparative advantage would lead them to specialise in the production of raw materials and extractive products and prevent them from acquiring an industrial base. Protection of infant industries (e.g., through tariffs on imported products) may be needed for some developing countries to industrialise and escape their dependence on the production of raw materials.

Economist Ha-Joon Chang argued in 2001 that most of today's developed countries have developed through policies that are the opposite of free trade and laissez-faire such as interventionist trade and industrial policies to promote and protect infant industries. In his view, Britain and the United States have not reached the top of the global economic hierarchy by adopting free trade. As for the East Asian countries, he argues that the longest periods of rapid growth in these countries do not coincide with extended phases of free trade, but rather with phases of industrial protection and promotion. He believes infant industry protection policy has generated much better growth performance in the developing world than free trade policies since the 1980s.

In the second half of the 20th century, Nicholas Kaldor takes up similar arguments to allow the conversion of ageing industries. In this case, the aim was to save an activity threatened with extinction by external competition and to safeguard jobs. Protectionism must enable ageing companies to regain their competitiveness in the medium term and, for activities that are due to disappear, it allows the conversion of these activities and jobs.

Free trade and poverty

In an op-ed article for The Guardian (UK), Ha-Joon Chang argues that economic downturns in Africa are the result of free trade policies, and elsewhere attributes successes in some African countries such as Ethiopia and Rwanda to their abandonment of free trade and adoption of a "developmental state model".

Some commentators argue that poor countries and regions that have succeeded in achieving strong and sustainable growth are those that have become mercantilists, not free traders: China, South Korea, Japan, Taiwan.

The 'dumping' policies of some countries have also largely affected developing countries. Studies on the effects of free trade show that the gains induced by WTO rules for developing countries are very small. This has reduced the gain for these countries from an estimated $539 billion in the 2003 LINKAGE model to $22 billion in the 2005 GTAP model. The 2005 LINKAGE version also reduced gains to 90 billion. As for the "Doha Round", it would have brought in only $4 billion to developing countries (including China...) according to the GTAP model. However, it has been argued that the models used are actually designed to maximise the positive effects of trade liberalisation, that they are characterised by the absence of taking into account the loss of income caused by the end of tariff barriers.

Trade deficits

The notion that bilateral trade deficits are per se detrimental to the respective national economies is overwhelmingly rejected by trade experts and economists.

Arguments against tariffs

Neoclassical analysis in favor of free trade

Effects of import tariff, which hurts domestic consumers more than domestic producers are helped. Higher prices and lower quantities reduce consumer surplus by areas A+B+C+D, while expanding producer surplus by A and government revenue by C. Areas B and D are dead-weight losses, surplus lost by consumers and overall. For a more detailed analysis of this diagram, see Free trade#Economics.

Neoclassical economic theorists tend to view tariffs as distortions to the free market. Typical analyses find that tariffs tend to benefit domestic producers and government at the expense of consumers, and that the net welfare effects of a tariff on the importing country are negative due to domestic firms not producing more efficiently since there is a lack of external competition. Therefore, domestic consumers are affected since the price is higher due to high costs caused due to inefficient production or if firms are not able to source cheaper material externally thus reducing the affordability of the products. Normative judgments often follow from these findings, namely that it may be disadvantageous for a country to artificially shield an industry from world markets and that it might be better to allow a collapse to take place. Opposition to all tariff aims to reduce tariffs and to avoid countries discriminating between differing countries when applying tariffs. The diagrams at right show the costs and benefits of imposing a tariff on a good in the domestic economy.

Imposing an import tariff has the following effects, shown in the first diagram in a hypothetical domestic market for televisions:

  • Price rises from world price Pw to higher tariff price Pt.
  • Quantity demanded by domestic consumers falls from C1 to C2, a movement along the demand curve due to higher price.
  • Domestic suppliers are willing to supply Q2 rather than Q1, a movement along the supply curve due to the higher price, so the quantity imported falls from C1−Q1 to C2−Q2.
  • Consumer surplus (the area under the demand curve but above price) shrinks by areas A+B+C+D, as domestic consumers face higher prices and consume lower quantities.
  • Producer surplus (the area above the supply curve but below price) increases by area A, as domestic producers shielded from international competition can sell more of their product at a higher price.
  • Government tax revenue is the import quantity (C2 − Q2) times the tariff price (Pw − Pt), shown as area C.
  • Areas B and D are deadweight losses, surplus formerly captured by consumers that now is lost to all parties.

The overall change in welfare = Change in Consumer Surplus + Change in Producer Surplus + Change in Government Revenue = (−A−B−C−D) + A + C = −B−D. The final state after imposition of the tariff is indicated in the second diagram, with overall welfare reduced by the areas labeled "societal losses", which correspond to areas B and D in the first diagram. The losses to domestic consumers are greater than the combined benefits to domestic producers and government.

That tariffs overall reduce welfare is not a controversial topic among economists. For example, the University of Chicago surveyed about 40 leading economists in March 2018 asking whether "Imposing new U.S. tariffs on steel and aluminum will improve Americans' welfare." About two-thirds strongly disagreed with the statement, while one third disagreed. None agreed or strongly agreed. Several commented that such tariffs would help a few Americans at the expense of many. This is consistent with the explanation provided above, which is that losses to domestic consumers outweigh gains to domestic producers and government, by the amount of deadweight losses.

Tariffs are more inefficient than consumption taxes.

A 2021 study found that across 151 countries over the period 1963–2014, "tariff increases are associated with persistent, economically and statistically significant declines in domestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciation, and insignificant changes to the trade balance."

Tariffs do not determine the size of trade deficits: trade balances are driven by consumption. Rather, it is that a strong economy creates rich consumers who in turn create the demand for imports. Industries protected by tariffs expand their domestic market share but an additional effect is that their need to be efficient and cost-effective is reduced. This cost is imposed on (domestic) purchasers of the products of those industries, a cost that is eventually passed on to the end consumer. Finally, other countries must be expected to retaliate by imposing countervailing tariffs, a lose-lose situation that would lead to increased world-wide inflation.

Optimal tariff

For economic efficiency, free trade is often the best policy, however levying a tariff is sometimes second best.

A tariff is called an optimal tariff if it is set to maximise the welfare of the country imposing the tariff. It is a tariff derived by the intersection between the trade indifference curve of that country and the offer curve of another country. In this case, the welfare of the other country grows worse simultaneously, thus the policy is a kind of beggar thy neighbor policy. If the offer curve of the other country is a line through the origin point, the original country is in the condition of a small country, so any tariff worsens the welfare of the original country.

It is possible to levy a tariff as a political policy choice, and to consider a theoretical optimum tariff rate. However, imposing an optimal tariff will often lead to the foreign country increasing their tariffs as well, leading to a loss of welfare in both countries. When countries impose tariffs on each other, they will reach a position off the contract curve, meaning that both countries' welfare could be increased by reducing tariffs.

Modern tariff practices

Russia

The Russian Federation adopted more protectionist trade measures in 2013 than any other country, making it the world leader in protectionism. It alone introduced 20% of protectionist measures worldwide and one-third of measures in the G20 countries. Russia's protectionist policies include tariff measures, import restrictions, sanitary measures, and direct subsidies to local companies. For example, the government supported several economic sectors such as agriculture, space, automotive, electronics, chemistry, and energy.

India

From 2017, as part of the promotion of its "Make in India" programme to stimulate and protect domestic manufacturing industry and to combat current account deficits, India has introduced tariffs on several electronic products and "non-essential items". This concerns items imported from countries such as China and South Korea. For example, India's national solar energy programme favours domestic producers by requiring the use of Indian-made solar cells.

Armenia

Armenia, a country located in Western Asia, established its custom service in 1992 after the dissolution of the Soviet Union. When Armenia became a member of the EAEU, it was given access to the Eurasian Customs Union in 2015; this resulted in mostly tariff-free trade with other members and an increased number of import tariffs from outside of the customs union. Armenia does not currently have export taxes. In addition, it does not declare temporary imports duties and credit on government imports or pursuant to other international assistance imports. Upon joining Eurasian Economic Union in 2015, led by Russians, Armenia applied tariffs on its imports at a rate 0–10 percent. This rate has increased over the years, since in 2009 it was around three percent. Moreover, the tariffs increased significantly on agricultural products rather than on non-agricultural products. Armenia has committed to ultimately adopting the EAEU's uniform tariff schedule as part of its EAEU admission. Until 2022, Armenia was authorised to apply non-EAEU tariff rates, according to Decision No. 113. Some beef, pork, poultry, and dairy products; seed potatoes and peas; olives; fresh and dried fruits; some tea items; cereals, especially wheat and rice; starches, vegetable oils, margarine; some prepared food items, such as infant food; pet food; tobacco; glycerol; and gelatin are included in the list. Membership in the EAEU is forcing Armenia to apply stricter standardisation, sanitary, and phytosanitary requirements in line with EAEU – and, by extension, Russian – standards, regulations, and practices. Armenia has had to surrender control over many aspects of its foreign trade regime in the context of EAEU membership. Tariffs have also increased, granting protection to several domestic industries. Armenia is increasingly beholden to comply with EAEU standards and regulations as post-accession transition periods have, or will soon, end. All Armenian goods circulating in the territory of the EAEU must meet EAEU requirements following the end of relevant transition periods.

Armenia became a WTO member in 2003, which resulted in the Most Favored Country (MFC) benefits from the organisation. Currently, the tariffs of 2.7% implemented in Armenia are the lowest in the entire framework. The country is also a member of the World Customs Organization (WCO), resulting in a harmonised system for tariff classification.

Switzerland

In 2024, Switzerland abolished tariffs on industrial products imported into the country. The Swiss government estimates the move will have economic benefits of 860 million CHF per year.

Political analysis

The tariff has been used as a political tool to establish an independent nation; for example, the United States Tariff Act of 1789, signed specifically on July 4, was called the "Second Declaration of Independence" by newspapers because it was intended to be the economic means to achieve the political goal of a sovereign and independent United States.

The political impact of tariffs is judged depending on the political perspective; for example, the 2002 United States steel tariff imposed a 30% tariff on a variety of imported steel products for a period of three years and American steel producers supported the tariff.

Tariffs can emerge as a political issue prior to an election. The Nullification Crisis of 1832 arose from the passage of a new tariff by the United States Congress, a few months before that year's federal elections; the state of South Carolina was outraged by the new tariff, and civil war nearly resulted. In the leadup to the 2007 Australian Federal election, the Australian Labor Party announced it would undertake a review of Australian car tariffs if elected. The Liberal Party made a similar commitment, while independent candidate Nick Xenophon announced his intention to introduce tariff-based legislation as "a matter of urgency".

Unpopular tariffs are known to have ignited social unrest, for example the 1905 meat riots in Chile that developed in protest against tariffs applied to the cattle imports from Argentina.

Additional information on tariffs

Calculation of customs duty

Customs duty is calculated on the determination of the 'assess-able value' in case of those items for which the duty is levied ad valorem. This is often the transaction value unless a customs officer determines assess-able value in accordance with the Harmonized System.

Harmonized System of Nomenclature

For the purpose of assessment of customs duty, products are given an identification code that has come to be known as the Harmonized System code. This code was developed by the World Customs Organization based in Brussels. A 'Harmonized System' code may be from four to ten digits. For example, 17.03 is the HS code for molasses from the extraction or refining of sugar. However, within 17.03, the number 17.03.90 stands for "Molasses (Excluding Cane Molasses)".

Customs authority

The national customs authority in each country is responsible for collecting taxes on the import into or export of goods out of the country.

Evasion

Evasion of customs duties takes place mainly in two ways. In one, the trader under-declares the value so that the assessable value is lower than actual. In a similar vein, a trader can evade customs duty by understatement of quantity or volume of the product of trade. A trader may also evade duty by misrepresenting traded goods, categorizing goods as items which attract lower customs duties. The evasion of customs duty may take place with or without the collaboration of customs officials.

Duty-free goods

Many countries allow a traveller to bring goods into the country duty-free. These goods may be bought at ports and airports or sometimes within one country without attracting the usual government taxes and then brought into another country duty-free. Some countries specify 'duty-free allowances' which limit the number or value of duty-free items that one person can bring into the country. These restrictions often apply to tobacco, wine, spirits, cosmetics, gifts and souvenirs.

Deferment of tariffs and duties

Products may sometimes be imported into a free economic zone (or 'free port'), processed there, then re-exported without being subject to tariffs or duties. According to the 1999 Revised Kyoto Convention, a "'free zone' means a part of the territory of a contracting party where any goods introduced are generally regarded, insofar as import duties and taxes are concerned, as being outside the customs territory".

Quackwatch

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