Tariffs make no distinctions between intermediate or final goods.

When describing the effects of tariffs, commentators frequently liken them to sales taxes. This makes sense to a point, as sales taxes are much more familiar to most people, and likening them to tariffs clearly communicates that consumers pay the tax, which is an important point to make.

But tariffs are much worse than sales taxes, so likening them to sales taxes undersells how harmful they are. All taxes are harmful, but some are more harmful than others. Well-designed sales taxes are on the less harmful side since they don’t apply to savings and investments, which are the most important long-run determinants of economic growth.

A well-designed sales tax only applies to final consumption. A weakness of many state sales taxes is that they apply to some intermediate goods, creating double taxation. This is a well-known problem among tax policy experts.

Tariffs, on the other hand, make no distinctions between intermediate or final goods. As Kyle Pomerleau of the American Enterprise Institute points out in a blog post, tariffs share many of the characteristics of more harmful taxes, such as the corporate tax, that distort saving and investment.

Pomerleau gives an example:

Intuitively, one can think of a tariff that raises the price of an imported capital good as a negative investment tax credit—a tax that increases the acquisition cost of an asset. For example, a machine that requires a gross return of 20 percent and costs 10 percent more due to a tariff, would need to earn a 10 percent higher return (22 percent) to cover its higher price. If shareholders demand a net return of five percent, a two percentage point increase in the cost of capital is equivalent to applying an additional 28 percent corporate income tax to this asset.

There’s really no way to fix the distortions by designing the tariffs differently, either. Pomerleau explains:

Even if tariffs applied to all types of capital goods equally, they would still distort investment decisions across assets. Unlike a corporate income tax, which applies to the net return to new investment, tariffs apply to the entire cost of a capital asset. This is equivalent to taxing the gross return of an asset. Thus, tariffs place a greater burden on shorter-lived assets for which net returns are a smaller share of their gross returns. The result is a larger tax burden on machinery and equipment than structures and inventories.

That’s not what you want if you want economic growth. This is why Trump’s promises of deregulation concomitant with tariffs ring hollow and aren’t reassuring the markets. Any pro-growth effects of deregulation would likely be undoing the anti-growth effects of tariffs, at best putting the economy back where it started, not improving it.

Moving toward a consumption tax base would be a great idea for the U.S. Sales taxes are less harmful than income taxes, and seven states already fund their governments with a sales tax and without an income tax. That’s a smarter revenue model for more states to follow. It doesn’t help to compare sales taxes to tariffs that are far more destructive than a true consumption tax.