Trump’s Punitive Tariffs Against China Hurt the U.S. Most of All
A new study led by Lei Li, Assistant Professor of Applied Microeconomics at the University of Mannheim, shows that nearly 100 percent of U.S. punitive tariffs were borne by American importers from 2017 to 2019.
Credit: Privat
In the trade conflict between the world's two largest economies, U.S. importers have suffered from heavier price increases compared to their Chinese counterparts. A recent study led by Mannheim-based economist Lei Li shows U.S. importers paid 93 percent of tariffs on Chinese goods. In contrast, only 68 percent of China’s retaliatory tariffs were shouldered by Chinese importers, U.S. exporters paid the other 32 percent. The study was conducted as part of the Collaborative Research Center TRR 224.
“We analysed how the tariff burdens were shared between importers and exporters and got some surprising results,” says Prof. Lei Li, Ph.D. “Chinese importers paid about two-thirds of China’s tariffs. Yet, U.S. importers shouldered 93 percent of price increases due to U.S. tariffs. Such a near-complete ‘pass-through’ is uncommon and astonishing given the power of the United States to influence terms of trade.”
Additional costs to importers due to tariffs
Lei Li and her co-authors estimate that U.S. tariffs were costing U.S. importers USD 1.21 billion per month in 2018 and USD 2.47 billion per month in 2019. This compares to costs for Chinese importers of USD 0.18 billion per month in 2018 and USD 0.51 per month in 2019. The period analysed is 2017–2019 using monthly data from the U.S. Census Bureau and the Customs General Administration of China covering more than 17,000 products in total.
EPoS explanation
The differing price burdens are mainly due to import structures, trade policies, and specific tariff ‘pass-through’ of products, that is, the extent to which changes in import tariffs are passed on to importers. China brought in more products with lower tariff pass-through, such as agricultural goods. In contrast, the U.S. shipped in more products with higher pass-through, such as electronics. The two countries adopted different strategies in the trade war.
Short-term vs longer-term strategies
“China chose a short-term strategy setting tariffs in sectors where it has market power as a large importer,“ says Lei Li. “The U.S. seems to have been less concerned about reducing the trade deficit and more about future competition in high-tech sectors in the longer run.”
Background
The U.S. and China were locked in a tit-for-tat tariff war starting in 2018. With the trade agreement signed in 2020, the conflict was alleviated. The U.S. is currently reviewing whether to keep tariffs in place.
Text: Editorial team/