US President Donald Trump has repeatedly boasted that the tariffs he has imposed on trading partners are a financial windfall for the US treasury, but research shows it is Americans that bear the brunt of the impact.
Trump plans to ratchet up tariffs on $200 billion worth of Chinese goods to 25 per cent on Friday, and said the US will be fine without a trade deal since it is raking in the proceed from the tariffs.
But that announcement worries businesses and farmers, and has shaken up investors worldwide.
“Tariffs are taxes paid by American businesses and consumers, not by China,” said National Retail Federation (NRF) senior vice president David French.
“A sudden tariff increase with less than a week’s notice would severely disrupt US businesses, especially small companies that have limited resources to mitigate the impact,” French said.
According to Trump the duties have brought in an additional $100 billion per year paid by China and other countries, but in fact the taxes are paid by the importers, and ultimately passed on at least partially to consumers.
US and Chinese trade officials are set to hold crucial negotiations on Thursday and Friday in Washington, under the threat of the new tariffs.
And while industry and retailers support the Trump administration’s desire to change China’s behaviour and open access to the massive market, they worry the tactics will begin to cut into their sales as consumers feel the pinch.
“We want President Trump to successfully reach a deal with China that puts a check on anti-competitive behaviour,” said Retail Industry Leaders Association vice-president Hun Quach.
But he said the middle class will end up paying more for everyday consumer goods.
Jobs threatened, expenses up
The Trade Partnership, a private research firm, calculated that increasing existing duties to 25 per cent will raise annual expenses for a family of four by $767 and threaten nearly one million jobs Trade with China supports seven million jobs in the US, out of 39 million US jobs related to international trade.
The conflict between the economic powers has engulfed $360 billion in two-way trade. Trump began the tariff war last year because of complaints over unfair Chinese trade practices.
Customs duties affect many intermediate products such as steel, leather, rubber and plastics, as well as finished products from household appliances, to televisions and furniture.
A recent study by the New York Federal Reserve Bank shows that taxes imposed since March last year on steel and aluminium, and in July on Chinese goods, boosted the consumer price index by 0.3 per cent last year.
Research released last month by the University of Chicago and the New York Fed estimated that tariffs imposed on imported washing machines cost US consumers an additional $1.5 billion per year, raising the price of a washing machine by $86 and a dryer by $92.
“We want to see meaningful changes in China’s trade practices, but it makes no sense to punish Americans as a negotiating tactic,” NRF’s French complained in a statement.
“If the administration wants to put more pressure on China, it should form a multinational coalition with our allies who share our concerns.”
On Wednesday, official data from China showed a drop in exports in April, but Beijing’s surplus with the US remained stable despite the tariffs.
China has retaliated with steep tariffs on US agricultural imports, especially soy beans, although the Trump administration paid $12 billion in compensation to help hurting US farmers.
Several Republican politicians from states that voted for Trump said farmers were “losing patience”, in the words of Iowa Senator Joni Ernst.