A trader works at his desk on the floor of the New York Stock Exchange (NYSE) after the opening Bell on March 4, 2019 in New York City.
US markets plunge as Trump renews China trade threat
02:57 - Source: CNN Business
CNN  — 

Days ahead of what have been billed as the final round of China and US trade talks, President Donald Trump tweeted Sunday that he would be increasing tariffs on most Chinese exports to the US to 25%.

For the better part of a year Trump has heralded the benefits of his tariffs, claiming that foreign companies and countries pay billions of dollars into the US Treasury.

Twice on Sunday, the President claimed that China is paying the cost of these tariffs and that “(t)ariffs paid to the USA had little impact on product cost, mostly borne by China.” Trump also claimed that tariff payments are “partially responsible for our great economic results.” But there is little evidence of either point.

Facts first: US consumers bear the cost of these tariffs, not China or any other foreign country, and studies have found that the tariffs have harmed the US economy, not helped.

So far, Trump has imposed tariffs on all foreign washing machines and solar panels, steel and aluminum from most every country, and hundreds of billions of dollars of Chinese imports to the US.

Economic studies on the impact of these tariffs show that US consumers, not China or other foreign importers, bear the weight of this cost to the US government.

Two recent papers have found that the tariffs on Chinese goods – as well as those imposed on foreign steel, aluminum and washing machines – have raised prices on American consumers. That’s because some importers passed along the cost of the tariff and some domestic producers raised prices as they saw less foreign competition.

A March paper from economists at Columbia, Princeton, and the New York Federal Reserve found that the “full incidence” of Trump’s tariffs have fallen on domestic companies and consumers – costing them $3 billion a month by the end of 2018. The paper also found that the tariffs led to a reduction in US income, by $1.4 billion a month.

A separate academic paper also found that the tariffs led to higher consumer prices. It estimated that the tariffs will result in a $7.8 billion per year decline in income.

But in some instances, the Chinese supplier might take on the burden of the tariff by reducing its prices to maintain a market in the United States.

Still, the White House’s Economic Report of the President, also released in March, acknowledged that American consumers are paying some of the cost of the tariffs. Domestic producers, it said, stand to benefit from price increases created by the tariffs, but “offsetting these benefits are the costs paid by consumers in the form of higher prices and reduced consumption.

While Trump is trying to realign trade so that US products become more competitive with their cheaper Chinese alternatives, this will require long-term adjustments to the US industrial base – which is currently not designed to manufacture many of these products.