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Economic Commentary

Implications of a Tariff on Oil Imports

The sharp drop in oil prices from $30 per barrel in November 1985 to about $15 recently has sparked efforts in Congress to enact a tariff on imported oil.

Proponents argue that such a tariff would help reduce the federal budget deficit, that it would help cut the foreign trade deficit, and would prop up a sagging domestic oil industry. However, our analysis indicates that while the tax would certainly contribute somewhat on all three of these counts, on balance it is probably a bad idea. The tax would reduce real economic growth, raise the overall price level, subsidize domestic petroleum production at the expense of the rest of the nation, hurt oil exporting nationsparticularly heavily indebted ones such as Mexicoand move the world further away from the economic efficiencies of free trade.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit for updates.

Suggested Citation

Anderson, Gerald, and Kim J. Kowalewski. 1986. “Implications of a Tariff on Oil Imports.” Federal Reserve Bank of Cleveland, Economic Commentary 9/1/1986.