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Why Trump's Tariffs on China Hurt Everyday Americans

May 7, 2019 in Economics

By Daniel J. Ikenson

Daniel J. Ikenson

With negotiations to remove sweeping U.S. tariffs and end the
year-long trade war seemingly in the homestretch, President Donald
Trump abruptly reversed course on Sunday and announced his
intention to increase those tariffs and extend their application to
all imports from China by the end of the week.

The president believes that depriving Chinese exporters access
to the U.S. market will compel Beijing to accept Washington
demands. Although raising tariffs certainly will tighten the vice,
the squeeze will be felt most acutely by Americans because tariffs
are nothing more than taxes on U.S. consumers, producers and
investors.

Contrary to Trump’s simplistic portrayal of trade, the United
States doesn’t purchase goods from China. Trade is not conducted
between countries. Rather, trade is the culmination of billions of
daily transactions between individuals around the world seeking to
obtain the most value from that exchange — the biggest bang
for their buck. By raising costs, tariffs ensure that consumers get
less bang for their bucks.

Rather than get on an airplane to China to purchase goods from a
local vendor, we avoid those transaction costs by letting our
retailers do the heavy lifting. U.S. companies such as Walmart,
Home Depot and Amazon purchase goods from Chinese
manufacturers.

Those purchases are made not because the retailers have any
interest in consuming those goods but because U.S. individuals
— and U.S. companies requiring intermediate goods and
machines to produce their own output — demand these goods. By
virtue of the volume of their transactions, wholesalers and
retailers have the market power and the logistics infrastructure in
place to negotiate prices and purchase these products on our
behalf.

When tariffs (or duties) are imposed at the U.S. border, those
costs get factored into the prices paid for each transaction in the
supply chain and, ultimately, by box store customers like you and
me. China is not paying those tariffs. And trade wars are neither
good nor easy to win.

In 2017, before the onset of the trade war, U.S. importers
purchased $504 billion of goods from China and paid tariffs (or
duties) of $13.5 billion to U.S. Customs and Border Protection
— about 2.7%.

Last July, tariffs of 25% were imposed on approximately
$50 billion of imports from China, and in September,
tariffs of 10% were imposed on an additional
$200 billion of Chinese goods.

Year-end figures show that in 2018, U.S. importers purchased
$543 billion of goods from China and paid duties of $23 billion
— 4.2%. That nearly $10 billion increase in tariffs paid came
out of the wallets of American consumers.

If the president follows through with his plan to hit all
imports from China …read more

Source: OP-EDS

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