Issues and implications of implementing surcharges to improve the U.S. balance of trade

This article addresses the issue of implementing surcharges on goods imported into the U.S. Recent legislation calling for surcharges is reviewed and a theoretical analysis of the effects of such legislation is presented. It is suggested that the implementation of surcharges would not improve the U.S. balance of trade to the extent expected by proponents of the surcharges due to offsetting factors. Particular factors considered in this study include surcharge pass-throughs, exchange rate mechanisms, trade diversion and reaction abroad.