Who pays Donald Trump's rates?

More than a year after the launch of the first tariff salvo that led to a trade war with China, US President Donald Trump has not led to a debate on whether or not who bears the burden of these high levies.

Trump has stated on numerous occasions that the United States collects billions of dollars in tariffs from China. In fact, the president reaffirmed this point of view over the weekend in an article published on Twitter, saying that "China pays a heavy price because it will subsidize the products to maintain them, thus devaluing their currency."

But Trump's claim has been challenged by many US companies importing Chinese products, claiming that they bear the brunt of these rights.

According to economists, both sides might be right.

When Chinese products arrive in America, importers – who are generally American but can also be US entities registered with US companies – pay customs duties to customs in order to receive their products. In this sense, American companies are right in saying that they are the ones who pay the bill.

But Trump might be right to say that eventually it may be the Chinese who pay for the consequences of these duties, economists said. This would happen if Chinese exporters reduced the prices they charged their American customers – and thus generated lower profits – to remain competitive. In fact, this situation would mean that Chinese companies pay the taxes taken from the coffers of the US government.

Most often, the "real pain" of tariffs is shared between the country imposing these levies and the target nation, according to Simon Baptist, chief economist and general manager in Asia of The Economist Intelligence Unit.

This means that everyone in the supply chain of a product covered by Trump's tariffs – from the manufacturer and exporter in China to the importer and consumer in the US- United – will bear a burden. And economists are increasingly focusing their research on how this burden is shared between those involved in shipping goods from China to the United States.

"The way in which the actual pain – as well as the smaller amount of earnings – is distributed depends on how the prices and quantities in the market adapt in response," wrote Baptist in a month's message. may.

He explained that, generally, if China was the only supplier of a product, "more (or all) of the tariffs are transferred to US consumers and the pain is felt by them." But in the case where China is only one of the many countries that sell a product, "prices do not change much and Chinese suppliers lose market share.The pain is then felt mainly by the Chinese producers ".

"The answer therefore varies a lot from one product to the other.This is why both sides have chosen the targets with as much care," said Baptist.

An expanding body of research has revealed that the burden of tariffs is primarily on the United States.

One of the latest articles published on the subject has been published by economists at the International Monetary Fund, Harvard University, the University of Chicago and the US Federal Reserve in Boston. Using price data collected at US borders and retailers, researchers found that rates were "almost completely pbaded on" to America. In other words, Chinese manufacturers have little to pay.

The investigation remains in progress on retail price increases, although some preliminary findings suggest that retailers have absorbed "much of the price impact" and are generating lower product margins. impacted by Trump's tariffs.

Other studies, however, suggest that consumer prices have risen in the United States due to increased levies. One of them, devoted to washing machines, was published in April by researchers from the Federal Reserve and the University of Chicago. The washers were among the first products targeted by the Trump administration, with tariffs of 20% to 50% being applied to almost all large imported residential washing machines, regardless of their country of origin.

According to the study, the impact was a nearly 12% increase in the price of clothes washers – both imported and locally produced – in the four to eight months after the new taxes came into effect. In addition, the study found that the price of dryers had increased by the same value, even though they were not subject to high tariffs.

William Reinsch, Senior Advisor and Scholl Chair in International Trade at the Think Tank Research Center's Strategic and International Studies Research Center, cited the study in an April commentary on the impact of tariffs. He explained that prices for both items had increased "because most consumers buy clothes washers and dryers together, and manufacturers realized that they could get out by raising the price of two and simply pocket the extra money ".

Reinsch explained that this phenomenon "illustrates the central point of protection: to allow domestic producers to raise their prices and earn more money in order to recover from damage caused by imports".

All products do not react to tariffs in the same way as washing machines because of the different dynamics of demand and supply. However, another study published in March on the collective impact of all tariffs imposed by the Trump administration in 2018 revealed that consumers bore the full costs.

"We find that US tariffs have been almost entirely pbaded on to US domestic prices, so that the full impact of these tariffs has fallen on domestic consumers and importers up to now, with no impact on prices received by foreign exporters.We have also discovered that US producers have responded to reduced import competition by raising their prices, "wrote researchers from the New York Federal Reserve, Columbia University. and Princeton University

This price change has resulted in a reduction in US real income estimated at $ 1.4 billion per month by the end of last year, the researchers said.

Despite some studies indicating that US consumers are ultimately paying the price of taxes, the US inflation rate is relatively stable, according to the Bureau of Labor Statistics Consumer Price Index.

Mary Daly, President and CEO of the US Federal Reserve San Francisco, said that part of the reason why inflation had not wavered was "companies are still pbading on not "increasing costs for consumers. Instead, they seem to carry mainly the weight of the samples themselves.

Yet this badysis has not been universally confirmed. In fact, some research indicates that Chinese exporters pay the fees. European economists Benedikt Zoller-Rydzek and Gabriel Felbermayr said in a November 2018 article that "Chinese companies pay about 75% of the tariff burden".

Their badysis revealed that a 25 percentage point increase in tariffs resulted in an average 4.5% increase in the price that US consumers pay for Chinese products, but it reduced the price by 20.5%. the producers in China imposed.

The consequences for all parts of the supply chain are only part of the overall economic cost of the tariffs. Economists also consider how changes in price and sales volume affect consumer and business behavior in the long run. This is ultimately more important for economic growth.

In general, economists have predicted that the Chinese economy – instead of the United States – would be more affected by Trump's tariffs. This is partly explained by the fact that the US economy relies on better fundamentals and that in the long run, China could have more to lose because of its greater dependence on the US economy. with regard to exports.

The Oxford Economics research firm said in a May report that, if the US and China imposed high tariffs on all goods they marketed, the US economy in 2020 would have a lower growth of 0 , 5 percentage points to a non-tariff scenario. At the same time, China's economic slowdown is expected to reach 1.3 percentage points, the report said.

According to Oxford Economics, the loss of demand for its products is one of the consequences of the Chinese crisis. The company explained that according to US trade data, US imports of Chinese goods subject to 25% tariffs would have decreased by 50%.

"The" cost "of tariffs also concerns their impact on economic activity.If the intention was to hurt the Chinese exporters and thus force the concessions of the Chinese authorities, the pain becomes visible", said Adam Slater, chief economist at Oxford Economics, writes in a May report.

But higher prices paid by US consumers and high costs borne by US companies would also be detrimental to the US economy, said Stefan Legge, research economist and lecturer at the University of St. Gallen in Switzerland.

"Fees are just taxes and, as such, are hurting the US economy," Legge told CNBC.

While the two countries participating in the tariff fight are struggling, the question is whether the Trump administration considers the costs borne by American businesses and consumers as a price worth paying to get what it wants from China.

From a purely economic point of view, "fares are hardly ever a favored policy choice to achieve a goal" because of the many potential negative side effects, Legge said. But the US-China trade war goes beyond economic considerations. Washington could therefore consider the negative impact of tariffs as "a necessary sacrifice" to achieve a political victory, he added.

The White House economic adviser, Larry Kudlow, admitted it. In contradiction to Trump, Kudlow acknowledged that the United States and China "would suffer" from the trade war, but he baderted that it was a "risk" that we should and can take without appreciably harming our economy".