U.S. firms and consumers, not China, paying for Trump’s tariffs
January 14, 2020 Category China News Round-up, Weekly
American companies and consumers are paying almost the full cost of U.S. tariffs, and the impact of those duties on import volumes increases over time, according to a paper by the National Bureau of Economic Research. Traditional trade theory would suggest tariffs levied by the U.S. should cause foreign firms to lower prices and thereby force them to shoulder the cost of the duties. However, the study by Federal Reserve Bank of New York Researcher Mary Amiti and Professors Stephen Redding of Princeton University and David Weinstein of Columbia University shows the levies have not had a major impact on foreign export prices, suggesting American firms and consumers bear almost all the burden in most sectors as companies work to reorganize supply chains.
“Among goods that continue to be imported, a 10% tariff is associated with about a 10% drop in imports for the first three months, but this elasticity doubles in magnitude in subsequent months,” the authors wrote. That suggests “the 2018 tariffs – many of which were applied in October – are only now having their full impact on U.S. import volumes”. A separate working paper circulated by NBER showed the 2018-19 tariffs also damped U.S. exports.
While Americans bear the cost of tariffs in most sectors, the same does not apply in the politically important steel industry, the study by Amiti, Redding and Weinstein showed. U.S. President Donald Trump fulfilled a campaign promise when his administration put 25% duties on imported steel in March 2018. The decision, meant to protect the industry from dumping practices by countries like China, was widely praised by producers, several of which announced plans to boost output. The paper finds the European Union, South Korea, Japan and other nations are shouldering almost half the cost of U.S. steel tariffs. That is good news for U.S. companies importing steel, “but bad news for workers hoping that steel tariffs will bring back jobs”, the paper said. It also may help explain why American steel production only increased by 2% per year between the third quarter of 2017 and the third quarter of 2019 despite the 25% steel tariffs, the South China Morning Post reports.
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