US consumers in particular are paying for Trump’s punitive tariffs

US President Donald Trump is boasting that the Chinese have to pay his punitive tariffs and are pumping billions of dollars into the state coffers. This representation is not correct. US importers can only pass on the tariffs, which they have to pay themselves, to the Chinese if they are granted corresponding discounts by the Chinese exporters. This might have been the US government’s objective; it has at least established the framework for this with the selection of product groups concerned. To date, the tariffs were imposed especially on products with relatively high elasticity of demand – processed food and animal products, for example, that are relatively easy to substitute, or numerous intermediate products. Consumer goods where there are few alternatives available to US consumers, such as clothing or toys, were largely spared.

However, we can see from several current studies carried out in the US that it was not possible to pass on the customs costs. Based on these studies, the tariffs have clearly driven up the prices of the goods in question. The prices of individual products, such as washing machines, have increased by 12%, while steel products are 9% higher. Overall, roughly one third of the tariff burden has been passed on to the US consumers and has led to a significant loss of real income; US importers have had to bear a further share through lower profit margins. The net losses meanwhile add up to USD 7.8bn or 0.04% of US economic output.

While this seems relatively low at first, the distribution effects are far greater. The price increases impact in particular on households in the lower income brackets, that use a high share of their income to buy the relatively cheap Chinese products. In other words, these are Trump’s voter clientele. Even if the US government tries to strike a balance, by passing on the customs revenue at a ratio of one-to-one as transfers to the households and companies (they will no doubt do this in the year ahead of the next presidential election), it will hardly be able to offer tailor-made compensation for the losses. There will be both winners and losers in the US. Also, if the US President carries out his threat and imposes an import duty of 25% on all imports from China, US consumers are likely to bear the tariffs to an even greater extent. If this happens, product groups where there are few alternatives available to US consumers will also be affected.

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