On Thursday, President Trump announced a new set of tariffs on $300 billion in Chinese products via Twitter:
Shortly after Trump’s announcement, Fox News’ Neil Cavuto took the president to task. Speaking directly to his audience, the host stated:
Just to be clarifying here, China isn’t paying these tariffs; you are. You know, indirectly and sometimes directly. It’s passed along to you through American distributors and their counterparts in the United States who buy this stuff from the Chinese and then have to pay the surcharges – not the Chinese government or China in particular. I didn’t quite understand what he was saying about the devaluation … Be that as it may, this latest round of tariffs that kick in on September 1 on $300 billion worth of goods at 10%, that will most directly be felt by consumers directly, because that happens on almost entirely consumer items rather than industrial-related items, but just wanted to clarify that. Governments don’t pay these things; you do, one way or another.
According to a National Bureau of Economic Research (NBER) working paper by Mary Amiti, Stephen J. Redding, and David Weinstein, published in March of 2019 titled, “The Impact of the 2018 Trade War on U.S. Prices and Welfare,” the president’s tariffs have harmed American consumers.
In their conclusion, the authors write:
We estimate the cumulative deadweight welfare cost (reduction in real income) from the U.S. tariffs to be around $6.9 billion during the first 11 months of 2018, with an additional cost of $12.3 billion to domestic consumers and importers in the form of tariff revenue transferred to the government. The deadweight welfare costs alone reached $1.4 billion per month by November of 2018. The trade war also caused dramatic adjustments in international supply chains, as approximately $165 billion dollars of trade ($136 billion of imports and $29 billion of exports) is lost or redirected in order to avoid the tariffs.
We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices, so that the entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters. We also find that U.S. producers responded to reduced import competition by raising their prices.
It has long been established that the cost of tariffs, generally speaking, eventually hit the American consumer. As the late-economist Milton Friedman said regarding steel tariffs during an exchange with a Utah man in 1978:
You very often bring out the logic of an argument by carrying it to an extreme. You know, you can have a great employment in the city of Logan, Utah, of people growing bananas in hothouses. If we had a high enough tariff on the import of bananas, it could become profitable to build hothouses and grow bananas and those hothouses. That would give employment. Would that be a sensible thing to do? If that isn’t sensible, neither is it sensible to artificially restrict the import of steel.
China, which has initiated retaliatory tariffs in the past, according to Reuters, could do so yet again. On Friday, Chinese Ambassador to the United Nations Zhang Jun said: “China’s position is very clear that if U.S. wishes to talk, then we will talk, if they want to fight, then we will fight.”