One of the greatest failures of understanding in trade economics is who is it that actually carries the burden of tariffs. Who is it that actually pays them?
Donald Trump is insisting that it’s all China paying those tariffs on Chinese produced goods which are then exported to the United States. Which, of course, it ain’t. But he’s saying it:
There is no reason for the U.S. Consumer to pay the Tariffs, which take effect on China today. This has been proven recently when only 4 points were paid by the U.S., 21 points by China because China subsidizes product to such a large degree. Also, the Tariffs can be…..
— Donald J. Trump (@realDonaldTrump) May 13, 2019
That’s an argument so stupid it could only have come from Peter Navarro. If China is subsidising those goods then Americans are getting the subsidy. If the subsidy disappears – Trump’s contention – then Americans are no longer gaining the subsidy, therefore Americans pay for the loss of the subsidy.
But Trump’s running with that argument all the same:
So our country can take in $120 billion a year in tariffs, paid for mostly by China, by the way, not by us. A lot of people try and steer it in a different direction. It’s really paid — ultimately, it’s pad for by — largely, by China. And businesses will pour back into our country. So instead of making the product, it’ll be old fashion way, the way we used to do it. We made our own product.
No. And also entirely missing the point of trade, which is to be able to buy those things made by Johnny Foreigner. That’s the only reason we labour over a hot factory, so that we can get the money to go buy those nice things.
But why not rely on that nice media for us, why not see what the factcheckers say?
Trump said that tariffs are “paid for mostly by China, by the way, not by us.” China doesn’t pay the initial tariffs — U.S. importers do. In many if not most cases, those costs are passed on to American consumers, whether it’s directly on the products hit by the tariffs or through an impact on U.S. companies who use raw materials hit with tariffs. China could also take a hit over the longer term in its gross domestic product, but experts say the harm to the U.S. economy would be swifter, more certain and potentially bigger. We rate the statement False.
OK, so there we have it. Or as Mark Perry, a friend of this place, puts it:
MP: And not just false, but COMPLETELY false, like FOUR FIVE PINOCCHIOS false, like Flat Earth false, like water runs uphill false, like “I didn’t have sex with that woman” false, like “Not smarter than a fifth grader” false, like not even remotely close to the truth false, like “If you like your doctor you can keep your doctor” false, like so False it shouldn’t even require a 1,200 word analysis by Politifact to confirm such a blatant falseho0d! False. False. False.
Professor Perry is really very keen indeed to make sure that no one is able to misunderstand his point.
Tariffs are paid by consumers inside the tariff barriers. So, can we all get with the program and stop making ourselves poorer please?