A tariff is a tax on imports, which are goods produced in a foreign country for sale in America. Tariffs are used by governments to inhibit free trading between countries. Proponents of tariffs claim that tariffs generally help the American economy, and hurt targeted foreign economies. The U.S. Constitution grants authority to the U.S. Congress to levy tariffs, and Congress enacted several tariffs during the 1900s, which selectively delegated this authority to U.S. presidents.

President Donald Trump is a vocal tariff supporter, making it every American citizen’s duty to understand the basic structure and function of tariffs, as well as their implications.

Assume that a Chinese-made bicycle sells in China for the equivalent of $100, and that the U.S. has just imposed a 25% tariff rate, or $25, on each Chinese-made bicycle purchased by Americans. Further assume that a similar American-made bicycle also currently sells for $125 in America.

Step 1, the importer: A Chinese-made bicycle is brought into America by an American importer for resale to Americans. This importer buys the bicycle from a Chinese manufacturer for $100, and must pay a $25 tariff to the U.S. government. Thus, the importer pays $125 out-of-pocket for each Chinese-made bicycle imported into the U.S.

Step 2, American citizens: The importer then re-sells each imported Chinese-made bicycle to a U.S. wholesale or retail seller for $150: he must cover the $125 outlay, PLUS he tacks on an upcharge of, say, an additional 20%, or $25, to cover freight and other business costs as well as his profit margin. Wholesalers or retailers then add their own upcharge to this $150 price charged by the importer, all of which hits the pocketbooks of U.S. consumers.

Step 3, the U.S. government: If Americans buy, for example, 1 million Chinese-made bicycles annually, tariffs paid to the U.S. government are $25 million annually (the $25 tariff x 1 million bicycles). As long as the importer pays a $25 tariff to the U.S. government for each imported bicycle, the potential revenue generated by this tariff is theoretically unlimited.

Here’s the rub: U.S. citizens are not likely to dish out $150 or more for a foreign-made bicycle, if the alternative is buying a similar American-made bicycle for only $125. In other words, tariffs discourage Americans from buying higher-priced foreign-made goods, resulting in scant tariff revenue generation. Even more problematic, as American demand for American-made goods grows, U.S. manufacturers will raise domestic prices, since there is little or no price competition from overseas producers. And higher-rate tariffs multiply this upward pressure on the prices of American-made goods. Inflation quickly becomes a problem.

So, if tariffs are demonstrably ineffective tax generators as well as inherently inflationary, why would a president promote them as desirable? The simple answer: As American demand for American-made goods grows, U.S. employment rises, and our economy prospers. Conversely, foreign employment and economies will suffer, as foreigners become increasingly unemployed because Americans are purchasing fewer, higher-priced foreign goods.

However, this short-term positive result is soon countered by foreign producers, who implement workarounds, rerouting their supply chains to the U.S. through nearby countries that have relatively lower U.S. tariffs.

American manufacturers incur higher costs as they scramble to identify alternative supply sources, as their regular supply chains are disrupted or dry up. And these higher prices are passed along to consumers. Further, as American manufacturers lose confidence in their ability to produce, they dial back their hiring and investing activities. American employment and the economy suffer.

WHILE THESE supply chain bottlenecks and their attendant inflation are concerning, more problematic is the typical and rapid imposition of counter-tariffs by foreign governments.As foreign governments retaliate against U.S. tariffs by imposing their own tariffs on U.S. exports into their country, U.S.-made prices of goods will rise, reducing foreign demand for American-made goods. U.S. workers are no longer needed, and Americans lose their jobs to foreign workers, and again the U.S. economy suffers. Equally as concerning, retaliatory tariff activity by foreign governments can prompt U.S. counter-retaliation, resulting in a cycle of escalating tariff impositions by both countries. Worst case, this pattern of trade spats can evolve into a full-blown trade war.

Tariffs carry additional, more insidious, inflationary implications. Many final goods manufactured by Americans are assembled from parts and materials imported from other countries, also known as intermediate goods or component parts. U.S. tariffs raise the price Americans pay on all foreign goods, including intermediate goods. As usual, U.S. importers pass along their higher purchase price for these foreign-made intermediate goods to U.S. sellers and then to U.S. consumers.

Tariffs have the potential to damage our national welfare as well as our economy. Over hundreds of years, the imposition of U.S. tariffs has resulted in trade wars, severe supply chain disruptions, spiraling inflation, prolonged recessions, and even military conflicts. Further, tariffs are highly ineffective tax revenue generating mechanisms. Though tariffs are potentially dangerous to the American economy, given the power of the immense U.S. economy, they also can inflict tremendous damage to the economies of other countries, especially financially weaker countries.

The highest and best value of U.S. tariffs may be their use as a political negotiating tool.

Larry Schiff is a lecturer on international economics at the University of Hawaii-Manoa.