New research has found that US firms and consumers are paying the entirety for US President Donald Trump’s tariff war on Chinese goods as US manufacturing contracted to levels unseen since the Great Recession ten years ago.
The New York Federal Reserve Bank economist found that domestic firms and buyers were bearing the brunt of higher tariffs across business sectors.
“Quite surprisingly, we have found that in most sectors, these US tarrifs have been completely passed on to US firms and consumers,” according to a research paper published by US-based National Bureau of Economic Research.
“Moreover, the reorganization of supply chains has increased with time,” added the authors of the research. “Interestingly, there is also substantial heterogeneity in the responses of some sectors, such as steel, where tariffs caused foreign exporters to drop their prices substantially enabling them to export relatively more than in sectors where tariffs pass-through was complete.”
Tariffs are a form of taxation and a way countries generate revenue. In the past, tariffs were one of the largest sources of funding for governments. Tariffs are a form of sales tax charged by a country’s customs authority. They are charged at the port of entry of the goods by a country’s custom’s authority and paid for by the domestic purchaser of the good.
US businesses and consumers are shielded from the higher tariffs to an extent that Chinese firms lower the dollar prices they charge, stated research by the New York Federal Reserve.
However, research has found that Chinese firms have not lowered the price for their exported goods to the US.
“US import price data, however, indicate that prices on goods from China have so far not fallen,” revealed the report. “As a result, US wholesalers, retailers, manufacturers, and consumers are left paying the tax.”
US Census Bureau and Department of Agriculture data revealed the ramifications of the tariffs that went into effect on September 1 on a batch of Chinese goods worth $112 billion. On that tariff increase alone Americans paid an additional $905 million.
“In the month of September alone, Americans paid a total of $7.1 billion in tariffs, more than any other amount in US history – a 59 percent increase from the same month last year and an increase of $600 million over last month,” read a statement from the US-based organization Tariffs Hurt the Heartland (THH).
UNCTAD, the main United Nations body dealing with trade and development issues, released a report finding identical conclusions on the effects of the US-China trade war.
“US consumers are paying for the tariff in terms of higher prices,” said economist Alessandro Nicita in the UN report. “Not only final consumers like us, but importers of intermediate products – firms which import parts and components from China.”
*US Manufacturing Also Down From Trade War Fallout
The Institute for Supply Management’s index found that manufacturing last month dipped to 47.2. Any reading under 50 on the index shows a contraction. December’s reading has been the lowest recorded since June 2009 and has been the fifth consecutive month US manufacturing has contracted.
Beijing has been consistent with its message that the US must negotiate fairly and not try to bully competing countries into a lose-lose position.
“Competition, decoupling, confrontation, and non-cooperation all come at a price,” read a commentary in China’s state media.
“The US-launched trade war against China has impacted US agricultural and manufacturing industries and forced consumers to pay more, while the technological war has put the US high-tech industry under risk of losing the Chinese market,” it added.