President Trump has just imposed rather large tariffs on our largest trading partners. He imposed a 25% tariff on imports from Mexico, a 25% tariff on Canadian imports except oil which got a 10% tariff and an additional 10% tariff on goods from China. Trump has some very specific long-term goals he hopes the tariffs will reach.

Many people object to the tariffs. Afterall a tariff adds to the cost of the product and tends to raise the price. The President has vowed to reduce inflation in the U.S. Tariffs could do just the opposite.

There is a question about who actually pays the tariff. Does the American consumer pay the tariff, or will the tariff be paid by the producing country.

The answer is it depends. (Economists will say it depends on the elasticity of demand.)

If the product is something that consumers feel they must have and if there are few, if any substitutes (inelastic demand), then the consumer will pay most of the tariff. That is likely the reason Trump imposed only a 10% tariff on oil products.

If the product is not a necessity and/or if there are substitute products available (elastic demand), then the tariff will mostly be absorbed by the producing county, or they will lose sales. Aside from oil, Trump is hoping that if the foreign producers do raise prices, U.S. consumers will seek domestically produced substitutes.

In fact, for many products made in China that is exactly what Trump wants.

As happened in the steel industry during Trump’s first term in office when he imposed a 25% tariff on imported steel, China and others tried to raise the price for steel sold in the U.S. The higher price allowed U.S. steel companies to compete with China and grow the steel industry.

The problem was U.S. manufactures had to pay higher prices for steel, which should have been inflationary. But because Trump was able to significantly reduce energy prices, so even higher steel prices, production of US steel increased.

That’s the long-term objective of the tariffs placed on China; to increase US production.

Similarly, some U.S. and some foreign automobile companies produce much of their output domestically sold in Mexico and Canada. The tariffs placed on those countries’ output could raise car prices. If so, the producers will then find it is cheaper to produce in the U.S. Auto prices will rise somewhat as the production returns to the U.S.

But again, Trump wants to reduce the cost of energy to offset the higher costs to produce in the U.S. He is also considering lowering the corporate tax rates for production returned to the U.S. The net longer term goal will be to keep prices stable and increase U.S. production.

The U.S. imports lumber from Canada because it is less expensive. But if the tariff on lumber does result in higher prices in the short term, the increased U.S. production and the reduced energy costs will put downward pressure on the price of domestically produced lumber in the long run.

Trump also believes that both Canada and Mexico are not doing enough to stop the amount of deadly illegal drugs from entering the country. The imposition of tariffs will create a sense of urgency forcing those countries to do more.

Both Canada and Mexico cannot afford to have these tariffs placed on their country. If the higher prices result in U.S. consumers curtailing their demand, both countries will go into recession. Worse, if they retaliate and place tariffs on U.S. goods going into their country, that will cause an inflation problem.

Neither country wants to see their economy experience a drop in output and higher prices. This sense of urgency will lead both Mexico and Canada to immediately negotiate to fix any trade imbalances as well as stopping the flow of drugs and illegal immigrants into the U.S. In the end, tariffs will allow Trump to reach his goals.

China is another matter. Hopefully they come to the bargaining table, because they do not want to lose the profitable American market which the tariffs would do. In addition, Trump will insist that China buy more of our goods, mostly in Agriculture.

As he did in the past, Trump will use tariffs as a negotiating tool to reach his long-term goals of more American manufacturing, lower energy prices, lower inflation, lower interest rates, a more secure boarder and less illegal drugs. If consumers have some pain in the short term, the long-term result have huge benefits for all Americans.

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Michael Busler is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.