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- Protectionist trade policies cost American consumers and importers $1.4 billion per month at the end of 2018, according to a new study.
- While President Donald Trump has claimed foreign companies pay tariffs, economists say that isn’t true.
- If the tariffs that were in place at the end of 2018 were to continue, approximately $165 billion dollars of trade per year will continue to be redirected.
A spate of protectionist policies with major trading partners reduced real US income by $1.4 billion per month at the end of 2018, according to a new study by economists at the New York Federal Reserve, Princeton and Columbia.
Using official data on prices and quantities of imports, they found American consumers and businesses footed the bill following the $283 billion worth tariffs the Trump administration levied on major economies last year while overseas companies paid little to nothing.
"The entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters," economists Mary Amiti, Stephen Redding and David Weinstein wrote in the report.
Throughout his months-long trade war, President Donald Trump has repeated the dubious claim that other countries pay tariffs. Last year, he asserted they could start paying down "large amounts" of the national debt (which is more than 9,000 times what the Treasury Department has typically brought in from tariff revenue each month of the trade war).
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But in reality, tariffs operate just like any other tax, meaning the associated costs can pass through supply chains and fall onto those not directly involved. When the Treasury Department charges a country 25% to ship a product into the US, importers or their customers often have to absorb those costs.
In a year, the study suggests the net loss from tariffs would amount to $16.8 billion in the US. While that’s a very small fraction of annual gross domestic product, business conditions have also deteriorated from uncertainty and retaliatory actions.
Some of the US’s largest trading partners, including China and the European Union, have pushed back at the Trump administration with tariffs of their own. Approximately $121 billion of US exports were affected by reprisals at the end of 2018, according to the study.
Trump has argued his trade war will ultimately help Americans by pressuring countries to change policies seen as unfair, but economists and businesses have warned protectionism will continue to hurt growth at home and abroad. The study estimates that if current tariffs remain in place, approximately $165 billion dollars of trade per year will be redirected.
“Our results imply that the tariff revenue the US is now collecting is insufficient to compensate the losses being born by the consumers of imports,” Amiti, Redding and Weinstein wrote. “We also see similar patterns for foreign countries who have retaliated against the US, which indicates that the trade war reduces real income for the global economy as well.”
Mary Amiti, Stephen J. Redding and David Weinstein
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Source: Business Insider – gheeb@businessinsider.com (Gina Heeb)