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IMF Says U.S. Is Paying China Tariff Costs, Contrary to Trump’s Claim

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IMF Says U.S. Is Paying China Tariff Costs, Contrary to Trump’s Claim
By Brendan Murray
May 23, 2019, 9:00 PM GMT+8 Updated on May 24, 2019, 12:58 AM GMT+8

Companies in the U.S. are paying almost all the costs from Donald Trump’s tariffs on Chinese imports, IMF researchers said in findings that contradict the president’s assertions that China is footing the bill.

IMF researchers found “tariff revenue collected has been borne almost entirely by U.S. importers,” according to the International Monetary Fund’s blog post released Thursday.

“Some of these tariffs have been passed on to U.S. consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins.”

The report concludes what most private economists have argued for months: that China doesn’t pay U.S. tariffs, American consumers and companies do. “Consumers in the U.S. and China are unequivocally the losers from trade tensions,” the IMF paper said.

It’s rare for the IMF to disagree with its largest shareholder, and the paper was released just as the rhetoric in Trump’s trade war with China reaches a boiling point.


“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods,” Trump tweeted May 5.

Trade talks between Beijing and Washington stalled this month as Trump accused China of backing out of a deal that was taking shape. In response, Trump increased levies on $200 billion in Chinese imports to 25% from 10%, prompting retaliation from Beijing.

According to a separate report Thursday from researchers at the Federal Reserve Bank of New York, the U.S.’s 15 percentage-point increase in tariffs will result in an annual cost of $831 per American household, about double the bill on Trump’s 2018 tariffs.

The U.S. has also released a list of about $300 billion in Chinese goods that could face additional tariffs, including clothing, toys and mobile phones. Those levies, if imposed, would cover essentially all Chinese imports and hit a broader swath of American households.

Earlier this month, White House economic director Larry Kudlow acknowledged “both sides will suffer” from the widening U.S.-China trade war, while predicting that the impact on U.S. jobs and growth from higher tariffs on Chinese goods would be “de minimis.”

Prices of goods impacted by U.S.-China tariffs have been going up
On Thursday, China blamed Washington for wrecking the talks and insisted the U.S. must alter its “wrong practices” before negotiations can resume. Financial markets, meanwhile, are slumping amid prospects for a long dispute between the world’s two largest economies.

Co-written by IMF chief economist Gita Gopinath, the paper says a trade war that escalates with all the threatened tariffs will subtract about a third of a percentage point of from global gross domestic product, “with half stemming from business and market confidence effects.”

“This type of scenario is among the reasons why we referred to 2019 as a delicate year for the global economy,” the IMF economists wrote.

The fund in April cut its 2019 forecast for global growth to 3.3%, the lowest since the financial crisis, citing higher tariffs weighing on trade and weakness in some advanced economies.


https://www.bloomberg.com/news/arti...ing-china-tariff-costs-contrary-to-trump-view
 
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It's true because when I import stuff from China I have to pay for the import duty/tax in the USA and not the supplier in China.
 
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It's true because when I import stuff from China I have to pay for the import duty/tax in the USA and not the supplier in China.

If the goal of Trump is to have US companies move their manufacturing out of China then simply having Chinese suppliers repeatedly slash prices isn’t going to accomplish that. The only way is to hit US importers in their pockets forcing them to switch.

For instance if you were importing a box of paperclips from China normally for $1 but with the tarif you have to pay the government $0.25 for a total of $1.25 on each box and a supplier in Mexico was only $1.10 you now may have an incentive to use them instead. If you didn’t and passed the cost to your customer then maybe your competitor would see an opening.

As for Chinese manufacturers importing their goods to the US...they will either have to raise prices or cut costs.
 
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It's true because when I import stuff from China I have to pay for the import duty/tax in the USA and not the supplier in China.

On paper, consumers pay the tax. But indirectly both sides share the cost.

Before the tariffs, consumers pay $1 for a pen and supplier receives $1.
After the tariffs, consumers pay $1.25 for a pen and supplier still receives only $1.

For the consumers, there are 2 effects:

1) Income effect. I can afford lesser pens now with my monthly salary due to the increase in price.
https://www.investopedia.com/video/play/income-effect/

2) Substitution effect. I substitute with cheaper goods from elsewhere.
https://www.investopedia.com/terms/s/substitution-effect.asp

So if the supplier wants to maintain market share/same level of sales, it has to cut costs (cut wages, lower profit margin, RMB depreciation etc) so that the consumer pays $1 for the pen after the tariffs. If they don't, quantity of sales will drop. Either way, revenue drops.

Who absorbs a higher share of the cost depends on the elasticity of demand/supply.

Screen%2BShot%2B2017-04-26%2Bat%2B2.08.32%2Bpm.png
 
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On paper, consumers pay the tax. But indirectly both sides share the cost.

Before the tariffs, consumers pay $1 for a pen and supplier receives $1.
After the tariffs, consumers pay $1.25 for a pen and supplier still receives only $1.

For the consumers, there are 2 effects:

1) Income effect. I can afford lesser pens now with my monthly salary due to the increase in price.
https://www.investopedia.com/video/play/income-effect/

2) Substitution effect. I substitute with cheaper goods from elsewhere.
https://www.investopedia.com/terms/s/substitution-effect.asp

So if the supplier wants to maintain market share/same level of sales, it has to cut costs (cut wages, lower profit margin, RMB depreciation etc) so that the consumer pays $1 for the pen after the tariffs. If they don't, quantity of sales will drop. Either way, revenue drops.

Who absorbs a higher share of the cost depends on the elasticity of demand/supply.

Screen%2BShot%2B2017-04-26%2Bat%2B2.08.32%2Bpm.png
Why are all your graphs linear?
 
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Well. While this may move manufacturing out of China, yes even some of my company's vendors have already moved out of China, they arent coming to US. If not China, Vietnam and India are replacing them. Mostly Vietnam. Even Korea.
 
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Interestingly, FDI into China has increased over the past 5 months, including investment from the US.

I think they do not care about not being able to exporting into the US; or, will nevertheless continue to export to the US.
 
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