Trump’s Technology Tariffs – Cost To Consumers Much Higher Than $1 Billion A Month

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Bloomberg tells us that the costs of Trumps technology tariffs is $1 billion a month. That’s the amount that is actually being paid in tariffs that is, the amount that the 10 and 25% rates on technology from China are bringing in in revenue. The problem with tariffs – as with near any other form of taxation – is that there’s a deadweight cost as well. A cost of imposing the tax which isn’t the revenue which is received. With tariffs that cost is that the price of all competing goods rises as well. For the obvious reason that if your competitor’s goods are more expensive then you too can raise your prices. The proof of this? That tariffs are often enough imposed precisely so that domestic producers can raise the price of their goods – vide the steel tariffs from that same Trump Administration:

$1 Billion a Month: The Cost of Trump’s Tariffs on Technology

Happy enough with that as a reading of the direct cost. But the full cost to consumers is higher than that:

U.S. companies paid $1 billion more in tariffs on technology products imported from China in October than a year earlier, as new duties imposed by the Trump administration took effect. The tariff costs rose more than seven-fold to $1.3 billion, as the world’s two biggest economies became embroiled in a trade war, according to data provided by the Consumer Technology Association and analyzed by consulting firm The Trade Partnership.

Again, that’s simply the revenue being taken by those tariffs.

So, Chinese goods are now more expensive in the US by this amount. As with those steel tariffs that means that domestic producers can raise their prices – we’re in a capitalist economy with profit maximising firms to they will do that too. OK. But there’s more. We’ve been buying these Chinese technology because it’s the best combination of price and quality. That Chinese technology is now more expensive, we’ll see some substitution away from Chinese in favour of other foreign suppliers. But by definition those other suppliers are more expensive for the same quality. That’s why we were buying the China production in the first place.

Sure, the Feds are gaining that billion and more in revenue. But the US consumer is losing much more than that. That’s why tariffs just aren’t a good way to collect revenue, over and above the innate silliness of worrying about the balance of trade in the first place.

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Jonathan Harston
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Jonathan Harston

Even if local producers were benevelent saints and didn’t raise their prices to match the now-expensive dasterdly foreign stuff, the whole point of the tariifs in the first place was that the foreign stuff was cheaper that native stuff, so with no changes to the prices of native stuff consumers are paying more. Instead of $1 for chinese widgets vs $2 for US widgets, it’s now $3 for chinese widgets vs $2 for US widgets. Widget consumers have had their costs increased by at least $1 *even* *if* *the* *US* *price* *does* *not* *change*.

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Shadeburst

What the heck is Trump thinking, starting a trade war instead of a shooting war? Tsk tsk.