Who pays the burden of Trump’s Chinese tariffs? – Washington Examiner
In a few weeks, depending on the outcome of testimony and due process procedures, the U.S.-China trade war may be escalated to an even more bitter level. It began in July 2018, when the Trump administration imposed a 25% tariff on $50 billion in Chinese imports. The Chinese retaliated. Then, in September 2018, the United States laid a 10% levy on an additional $200 billion in Chinese goods, and that tariff was raised to 25% in May 2019. Again, the Chinese retaliated.
The bureaucratic wheels now turning would expand the imports covered by the 25% tariff to include an additional $300 billion in Chinese goods. Do the math: 25% of the sum of $300 billion plus $200 billion plus $50 billion is $137.5 billion. That begins to look like serious money. Keep in mind, there will be a whole lot of shaking going on as all affected parties attempt to escape the tariff. Revenue shrinkage is a certainty.
But who will bear the burden of this tax on Chinese goods? Will it be Chinese firms? The Chinese government? U.S. consumers? American workers? Shareholders here at home? Corporations?
All of the above.
Let’s focus first on a much simpler part of the question: Who pays the tariff?
When Chinese goods arrive at a U.S. port, either an agent for the U.S. importer or the importer in person must pay the tariff before taking receipt of the goods. A payment will be made to U.S. Customs and Borders Protection. Yes, some U.S. entity pays the tariff, and money that was in the checking account of an American firm or citizen is now in the account of the U.S. Treasury. The private sector has less cash and more goods, and Uncle Sam has more cash.
I show below the flow from customs that has occurred from 2016’s first quarter through 2019’s first quarter. It began to accelerate about the time when the United States first imposed tariffs on Chinese goods; some $70 billion was received in the most recent quarter.
But what about the full burden of the tariffs? Who really ends up paying?
The financial burden splatters in many directions, but most of it is borne by American entities. In some cases, Chinese firms may pull in their belts and absorb some, if not all, of what would otherwise be a tariff-driven price increase. Competition just will not allow the Chinese firms to raise prices. In other cases, the Chinese government may rearrange budgets for government-owned firms and absorb some of the tariff.
In still other cases, which is the most likely outcome, tariff-induced price increases will be shifted to U.S. consumers. Finally, when American businesses rely on Chinese inputs, the tariff burden may be shared with workers whose wages will not rise by as much as they might otherwise and by investors who will see slower growth in corporate profits and weaker performing shares of stock.
At present, hundreds of business firms and other interest groups are testifying in hearings before the Office of the U.S. Trade Representative. Some oppose the expansion of Chinese tariffs, and others favor it. But as one looks down the list of organizations testifying, one key group will not be found: The unorganized mass of U.S. consumers who have the most to lose in the matter will not be heard.
There are just too many, and they have no corporate-style organization to convey their message.
Indeed, the smaller the interest group and the more they have at stake, the louder and more persistent is its voice. Major corporations will be heard. Organized labor’s voice will be strong, and many small businesses will sound off.
But consumers are the forgotten men and women who, for most part, rather silently go to work each day, pay their bills and taxes, and hope for a better day.
Yes, placing tariffs on Chinese goods seems to be the Trump administration’s regulatory flavor of the year. And yes, tariffs can generate sizable revenues for the U.S. Treasury. But that’s only when American firms and citizens bear the burden. The larger the burden, the greater the revenue.
What a way to celebrate the American dream.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.