American consumers will pay for Trump’s trade war

As Paul Krugman pointed out, it’s a fallacy to think that foreigners are the only ones paying the tariff bill. U.S. consumers pay as well. Believing that tariffs are a tax on foreign countries is like believing that sales taxes are a tax on Wal-Mart.

It’s also makes little sense for Trump to brag about the tax revenue his tariffs are creating, when his own tax cuts have increased the deficit by enormous amounts. So far the tariffs have raised a few billion in revenue, while the tax cuts are expected to cost about $100 billion every year.

…The burden of tariffs falls mostly on domestic consumers — in other words, Americans — because the prices of many traded goods are set in world markets. Suppose a Chinese company is selling a washing machine in the U.S. for $1,000. Trump then sets a tariff of $200 on the washing machine. The Chinese company knows that it can go sell its washing machine somewhere else without the tariff — France, or Japan, or Russia — and still get about $1,000 for it. So in order to make it worth the Chinese company’s while to sell the machine in the U.S., it’s going to have to raise the sticker price to $1,200.

That’s an idealized example, of course — in fact, the U.S. domestic market is large enough where it has some power to affect global prices, so Chinese merchants will pay some small portion of the tariff. But much of the cost of the tax will be borne by the American consumer.

Nothing new here. Incompetent economists like Peter Navarro – and crooked politicians like Trump and Reagan have been pushing models like this for decades. They fail to grow our economy every time. American taxpayers pick up the tab every time.

One thought on “American consumers will pay for Trump’s trade war

  1. Hey, Rube! says:

    The amount of import taxes paid by businesses in October was the highest in U.S. history, hitting $6.2 billion, according to a new report from a pro-trade group. http://tariffshurt.com/2018/12/new-tariff-data-shows-october-was-the-highest-tariffed-month-in-u-s-history/
    “U.S. businesses paid $6.2 billion in tariffs in October including $2.8 billion in new tariffs on products that have been targeted by the Trump Administration
    Data shows that tariffs have failed to achieve any stated Administration goals: US imports subject to new tariffs declined by just 0.6% in October, while US exports subject to retaliation fell 37%; Businesses are still importing goods while paying higher taxes, exports are falling, trade deficit is growing
    Tariffs Hurt the Heartland spokesman Charles Boustany: “The numbers don’t lie. Americans are paying these taxes and they’re paying more than ever before. These tariffs are not making our country wealthier, they are doing the exact opposite”.
    The amount paid in tariffs was more than double the tariff expenditures in October 2017, the group said.

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