Thursday, May 16, 2019

Who pays for the trade war? We do. -- May 16, 2019 column


How or when President Donald Trump’s trade war will end is anyone’s guess. There’s no long-term plan or end game in sight.

But two things are clear: You’ll pay more and Trump will claim he won.

Despite what you’ve heard, China is not paying for the tariffs any more than Mexico is paying for the border wall.  

“We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices, so that the entire incidence of the tariffs fell on domestic consumers and importers,” three economists wrote in a report on the impact last year of Trump’s tariffs. They are Mary Amiti at the Federal Reserve Bank of New York, Stephen Redding at Princeton and David Weinstein at Columbia.

Trump imposed tariffs on nearly $283 billion in imports last year – about 12 percent of total imports – and foreign countries retaliated with tariffs of their own on American goods amounting to $121 billion. 

By the end of the year, tariffs reduced U.S. income by $1.4 billion per month, the economists calculated.

Trump says consumers can buy American to avoid tariffs, but that’s easier said than done in our global economy. 

Besides, “We also find that U.S. producers responded to reduced import competition by raising their prices,” the report said.

A tariff is basically a tax at the border that’s paid by the importer, usually an American firm. Businesses may try to absorb the costs for a while, but eventually they pass them on to the consumer.

Even Trump’s top economics adviser, Larry Kudlow, conceded on “Fox News Sunday” that American consumers and businesses are paying the tariffs.

Trump says the world has been ripping off America too long. He insists tariffs bring back industries, like steel, and create jobs -- but the cost is astounding.

The steel tariffs Trump imposed last year created about 8,700 jobs in the U.S steel industry, according to calculations by the Peterson Institute for International Economics. But the price tag for American consumers and businesses for each job created or saved was more than $900,000.

“Wow!” the report said.

Trump has told allies and advisers the trade war is very popular with his base and will help him win re-election, The Washington Post reported.

“You want to know something? We always win,” Trump said on the White House lawn this week.

Well, let’s hope so. The last time the United States fell hard for tariffs was the 1930s, when tariffs probably worsened the Depression.

But Trump loves tariffs. After trade talks with China fell apart, he hiked tariffs from 10 percent to 25 percent on $200 billion worth of Chinese goods last Friday. China announced retaliatory tariffs of $60 billion on U.S. goods.

Trump wants to impose tariffs on another $300 billion of Chinese products, and he’s eyeing tariffs on autos from Europe and Japan.

Everyone agrees China should stop its aggressively unfair business practices -- like making American companies share technology and trade secrets. The question is whether tariffs are the right tool.

While the economy remains strong, the trade war is hurting the nation’s farmers who rely on overseas markets for soybeans. That’s opened a rift between the president and some Republicans in Congress.

Senate Finance Committee Chairman Chuck Grassley, an Iowa Republican and a lifelong farmer, complained he can’t through to Trump on the need to lift tariffs.

Trump gave farmers a $12 billion bailout last year and is planning another for $15 billion.

“Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now,” he tweeted.

But Sen. Patrick Toomey, Republican of Pennsylvania, isn’t buying.

“Think about what we’re doing. We’re inviting retaliation that denies our farmers, the most productive farmers on the planet, the opportunity to sell their products overseas and then we say, `Don’t worry, we’ll have taxpayers send you some checks and make it OK,’” Toomey said.  

Consumers can expect to see higher prices of Chinese goods by mid-June, experts say. Items affected include auto parts, bicycles, dog leashes, fish and seafood, furniture and luggage.  

So grab your wallet. You’re likely to suffer collateral damage in the trade war.

©2019 Marsha Mercer. All rights reserved.

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