Americans will be much less affected than Chinese producers by tariffs imposed by the Trump administration on hundreds of billions in exports from China, according to researchers from Germany and Switzerland.
The new 25 percent tariffs are affecting or will soon affect about half, or $250 billion, of imports from China. But U.S. companies and consumers are expected to see prices of those products going up by less than 5 percent on average, the researchers wrote. The prices of consumer products would be affected the most, climbing by less than 7 percent, while capital goods would only grow 2 percent more expensive.
Chinese firms, on the other hand, would have to reduce their prices by nearly 21 percent. “It is their declining profit margins that would pay for a large share of the tariffs,” the report stated.
Trade War
President Donald Trump has long complained about China’s unfair trade practices and blamed previous U.S. leaders for ineptitude in addressing the matter. In January, Trump imposed tariffs on washing machines and solar panels from China. China replied with tariffs on U.S.-grown sorghum.“The only deal would be China has to open up their country to competition from the United States,” the president told The Wall Street Journal.
If China fails to come to terms, Trump said he would put a 10 percent or 25 percent tariff on the rest of China’s imports.
Targeted Tariffs
The massive volume of imports from China has provided the Trump administration with a plethora of options for products to target. And it’s been the idea of targeted tariffs that brought aboard many Republicans, who have in the past touted unrestricted trade.Zoller-Rydzek and Felbermayr noted that the administration went after products with high import elasticity, which means their buyers are sensitive to price and consumers would more likely forgo a buy if the price goes up. In such cases, the impetus is on the seller to keep the price down.
“Through its strategic choice of Chinese products, the U.S. government was not only able to minimize the negative effects on U.S. consumers and firms, but also to create substantial net welfare gains in the U.S.,” the authors wrote.
The tariffs do incur some economic losses since the increased prices make a portion of customers not benefit from products they would have otherwise bought, the researchers noted. They estimated welfare losses to U.S. consumers of $522 million and over a billion to the Chinese.
Losers
The report makes clear that the tariffs won’t affect everybody in the same way. For example, most of the affected capital products and about a third of the consumer goods would barely change in price.Some prices, however, would go up considerably. About 12 percent of the consumer goods on the list would become more than 20 percent more expensive.
“Low-income U.S. households, in particular, will be affected by this increase, as they spend a considerable share of their income on (cheap) Chinese imports,” the authors wrote.
Also, corporations that have moved their production to China have to pay the tariffs too, even if the companies themselves are U.S.-based.
“Their high initial investment in Chinese production sites makes it very costly to adjust their supply chains, and the profits of U.S. multinational firms may drop as a result,” the report noted.