President Trump is vowing that his latest round of tariffs will help win a trade war, adding that China is “now paying us billions of dollars in tariffs.”
China isn’t paying the tariffs, however — the duties are paid by importers like Ford or Walmart that either swallow the cost or pass it along to consumers. In other words, it’s often U.S. consumers who are footing the bill for tariffs.
Mr. Trump’s tariffs are designed to make certain goods more expensive for U.S. consumers, who in turn are likely to seek out lower-cost items made in the U.S. or from countries that aren’t facing the higher tariffs. That will result in lower demand for Chinese imports, creating a bargaining tool in trade negotiations.
Not surprisingly, many U.S. businesses and industries are warning that Mr. Trump’s tariffs will crimp sales and result in lower profits. Earlier this month, Apple joined in the chorus,could make its products more expensive.
The latest round of tariffs could lower annual GDP growth by about 0.7 percent, according to Oxford Economics chief U.S. economist Gregory Daco in a Tuesday research note.
Americans “will soon face higher prices for common goods,” Daco noted. “Since the U.S. production apparatus is not geared towards producing most goods imported from China, import substitution would not be a readily available solution.”
Mr. Trump, meanwhile, predicted the tariff escalation would result in a positive resolution for U.S. consumers and workers. He’s previously stated that trade wars are “good” and “easy to win,” a portrayal that most economists say isn’t accurate.
“I think it’s going to work out very well with China. I think they want to make a deal. They do want to make a deal — that I can tell you. They want to make a deal,” Mr. Trump said at the White House on Monday.
Strong bargaining position?
Mr. Trump tweeted several other claims about tariffs on Monday that were inaccurate, such as claiming that the tariffs have “put the U.S. in a very strong bargaining position.”
But in trade talks with China, Canada and Mexico, it’s not entirely clear how much of an advantage the United States has gained from the tariffs. The import taxes imposed on steel and aluminum have been pressure points. So are the tariffs on $50 billion worth of Chinese goods, with the president suggesting he’s prepared to tax an additional $467 billion of imports from China. But Americans have to see a final deal with Canada or China to assess whether these taxes are delivering a better bargain.
Mr. Trump also claimed the tariffs have brought “Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be ‘Tariffed!'”
Still, have tariffs brought in billions of dollars and jobs without increasing inflation?
Yes, the tariffs have brought in slightly more revenue. It’s hard to know if they’ve helped create jobs. And the companies closest to the tariffs say that, yes, inflation is a risk.
In theory, the tariffs should add money to federal coffers. The 25 percent tax the Trump administration slapped on $50 billion of Chinese imports should raise $12.5 billion if the flow of goods continues without interruption.
And even though many tariffs haven’t been in place long enough to determine whether they’re helping draw in significantly more revenue, the Treasury Department said there has been a $5.4 billion jump in the collection of customs and duties so far this fiscal year. Some of this increase is due to more exports entering the United States.
But customs and duties account for just 1.2 percent of federal revenues, so any increase from tariffs does little to address the ballooning budget deficit.
The U.S. economy was adding jobs before the tariffs were announced, and it has been adding jobs since. It’s hard to know at this stage how the tariffs have influenced the pace of job creation, since any analysis would need to consider the whole of the nine-year expansion and the stimulus from Trump’s deficit-funded tax cut.
–With reporting by the Associated Press.
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