President Donald Trump announced Monday that he’s slapping a 10 percent tariff on $200 billion worth of Chinese goods, on top of similar tariffs imposed earlier this year on $50 billion worth of Chinese imports. Once the new tariffs are in place, Trump’s levies will apply to almost half the value of the products we buy from China.
Too bad the president doesn’t seem to understand who will pay these tariffs.
At an event earlier Monday, Trump talked about the trade negotiations with Mexico and Canada, then said, “China is now paying us billions of dollars in tariffs, and hopefully we’ll be able to work something out.” That’s exactly backward. The tariffs Trump imposed on Chinese goods are paid by the businesses and consumers in this country that buy them.
In other words, the tariffs are a tax on our people, not theirs. The pain ultimately is borne by U.S. consumers, as businesses pass along the tariffs they pay on the Chinese components and metals they buy. Alternatively, when businesses shift to higher-priced U.S.-made components and metals to avoid the tariffs, their costs go up, and their prices follow.
The New York Times offered a few examples: “Steel prices are up more than 10 percent since February, the month before Mr. Trump announced his long-awaited tariffs of 25 percent on steel and 10 percent on aluminum, from a wide swath of trading partners. Prices on washing machines jumped 20 percent in the months following Mr. Trump’s decision to impose tariffs on imported washers.”
The cost of goods in general is increasing slowly, but tariffs probably aren’t a factor because they apply to a very small slice of the economy. That could change, though, if Trump follows through on the two threats he added to the announcement of the $200 billion in new tariffs. First, the tariffs will go up from 10 percent to 25 percent on Jan. 1 - a clear effort to force China to the negotiating table. And second, Trump said he’ll hit the rest of China’s exports to the United States - about $267 billion worth of goods - “if China takes retaliatory action against our farmers or other industries.”
Trump sees this as a contest he can’t lose, given how much more Americans import from China than the Chinese import from us. To many economists, this trade imbalance is a sign of the United States’ low savings rate, the confidence and capability of U.S. buyers, and other factors that aren’t necessarily negative. To Trump, it’s a sign that China is defeating us in the race for manufacturing jobs.
Referring to last year’s $375-billion trade deficit with China, Trump said, “(W)e’re not going to lose that. We can’t do that. We can’t do that anymore. It should have been done many years ago. It should have been done by other Presidents. And actually, it’s a disgrace that it wasn’t done.”
The president is counting on China to cave in the face of the ever-ratcheting penalties on Chinese exports. That hasn’t happened yet; instead, China has been content to impose retaliatory tariffs on U.S. exports, hurting sales and raising anxiety levels across many industries. (In fact, groups representing thousands of businesses banded together this month to lobby harder against the levies.)
So, get ready for higher prices, consumers! Just in time for the holiday season.