Breaking News
LAST CHANCE for Cyber Monday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Explainer - Trump's China tariffs: Paid by U.S. importers, not by China

EconomyAug 01, 2019 10:37PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Imported frozen seafood, some from China, is shown housed in a large refrigerated warehouse at Pacific American Fish Company imports (PAFCO) in Vernon, California

By Rajesh Kumar Singh

CHICAGO (Reuters) - With U.S. President Donald Trump's announcement on Thursday of tariffs on another $300 billion of Chinese imports, nearly all goods from China will be subject to import taxes, and Trump says they generate billions of dollars in revenues for the U.S. Treasury from China.

But that is not how tariffs work. China's government and companies in China do not pay U.S. tariffs directly. Tariffs are a tax on imported products and are paid by U.S.-registered firms to U.S. customs when goods enter the United States.

Importers often pass the costs of tariffs on to customers - manufacturers and consumers in the United States - by raising their prices. U.S. business executives and economists say U.S. consumers foot much of the tariff bill.

That was why, immediately after Trump announced his decision, U.S. retailers blasted the move as "another tax increase on American businesses and consumers," which they warned would threaten U.S. jobs and raise costs for American families.

The new levies will hit a wide swath of consumer goods from cell phones and laptop computers to toys and footwear.

Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said the new tariffs would hit U.S. consumers far harder than Chinese manufacturers, who produce 42% of apparel and 69% of footwear purchased in the United States.

Investors are worried that the increase in retail prices will hit consumer spending which has underpinned the U.S. economy, and trade uncertainty makes businesses hold back capital spending.

WHAT THE 'TARIFF MAN' SAYS

Trump says the United States will be "taxing" China until a trade deal is secured. He has called himself the "Tariff Man," often repeating that China pays for U.S. tariffs on its goods.

On May 5, he tweeted: "For 10 months, China has been paying Tariffs to the USA."

HOW TARIFFS REALLY WORK

U.S. Customs and Border Protection (CBP) collects the tax on imports. The agency typically requires importers to pay duties within 10 days of their shipments clearing customs.

From early 2018 through May 1, Washington has assessed $23.7 billion in tariffs, according to data from the CBP.

Total tariff revenue rose by 73% year-on-year in the first half of 2019, to a total of $33.9 billion, according to U.S. Treasury data.

DO CHINESE SUPPLIERS BEAR THE COSTS OF U.S. TARIFFS?

Chinese suppliers do shoulder some of the cost of U.S. tariffs in indirect ways. Exporters sometimes, for instance, may offer U.S. importers a discount to help defray the costs of higher U.S. duties and maintain their contracts and market share.

Chinese companies are losing business as U.S. importers are scouting for cheaper, tariff-free sources of the same goods outside China.

Trump and top members of his Cabinet have said that the tariffs are accelerating a move of manufacturing out of China as companies seek to relocate in countries that are not subject to U.S. import tariffs.

U.S.-based importers, meanwhile, are managing the higher tax burden in a number of ways that hurt U.S. companies and customers more than China.

Such strategies include accepting lower profit margins; cutting costs - including wages and jobs for U.S. workers; deferring any potential wage hikes, in addition to passing on tariff costs through higher prices for U.S. consumers or companies.

Most importers use a mix of such tactics to spread the higher costs among suppliers and consumers or buyers.

HIGHER PRICES FOR COMPANIES AND CONSUMERS

Higher duties on imports of Chinese and other products, for example, increased Caterpillar (NYSE:CAT) Inc's production costs by $70 million in the last quarter. It expects to pay between $250 million and $350 million in tariffs this year. In response to higher manufacturing costs, the heavy equipment maker has increased prices.

Walmart (NYSE:WMT) Inc, the world's largest retailer, and department store chain Macy's Inc have warned of an increase in prices for shoppers due to higher tariffs on goods from China.

A Congressional Research Service report in February found that tariffs imposed by Trump on global washing machine imports had boosted prices by as much as 12%, compared with January 2018, before tariffs took effect.

Global steel and aluminum import tariffs increased the price of steel products by nearly 9% last year, pushing up costs for steel users by $5.6 billion, according to a study by the Peterson Institute for International Economics.

U.S. companies and consumers paid $3 billion a month in additional taxes because of tariffs on Chinese goods and on global metals imports, according to a study by the Federal Reserve Bank of New York, Princeton University, and Columbia University. Companies shouldered an additional $1.4 billion in costs related to lost efficiency in 2018, the study found.

WHAT DO COMPANIES IN CHINA PAY?

China has retaliated against U.S. tariffs by imposing its own tariffs on imports from the United States.

Most importers in China are Chinese. So in the same way the U.S. government collects import taxes on Chinese goods from U.S. importers, the Chinese government takes in taxes on U.S. goods from Chinese importers.

Explainer - Trump's China tariffs: Paid by U.S. importers, not by China
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Bronson Naab
Bronson Naab Aug 02, 2019 1:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sad that our President doesn’t understand basic economics.
James Pattison
James Pattison Aug 02, 2019 12:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The idea here is just to bring jobs back home...
Jack Zhang
Jack_A Aug 02, 2019 12:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
where is the job now?
Paul Manefee
Paul Manefee Aug 01, 2019 9:51PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
By an amature, chinese bought “economist”
David David
David9 Aug 01, 2019 8:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Looks like Trump is playing directly into President Xi's plan. The US businesses has been shouldering the costs, but second half, they will start to pass them onto consuners. Expect a dark Christmas this year if Trump continues the tarriffs and US will enter a recession next year if he can't get a deal done.
Zoltan McVeigh
Zoltan McVeigh Aug 01, 2019 8:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Do you understand why trarrifs are ultimately imposed by countries? You might consider alittle research before commenting.
Kenny Yap
Kenny Yap Aug 01, 2019 8:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Zoltan McVeigh What are you talking nonsence? Have you read d above article before comment as explain clearly by these articles.......
Karin KH
Karin KH Aug 01, 2019 8:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Trump's supporters knew nothing & couldn't read as Trump:):):)
Dunn Ng
Dunn Ng Aug 01, 2019 8:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Xi loose nothing of tariff
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email