US firms and consumers, not China, paying for Trump’s tariffs
- New study shows duties had no major impact on foreign export prices, suggesting US is bearing almost all the burden in most sectors
- Steel tariffs, meant to protect US industry from dumping practices by countries like China, failing to save jobs, researchers say
American companies and consumers are paying almost the full cost of US tariffs, and the impact of those duties on import volume magnifies over time, according to a paper circulated on Monday by the National Bureau of Economic Research.
Traditional trade theory would suggest tariffs levied by the US should cause foreign firms to lower prices and thereby force them to shoulder the cost of the duties.
However, the study by Federal Reserve Bank of New York researcher Mary Amiti and professors Stephen Redding of Princeton and David Weinstein of Columbia shows the levies have not had a major impact on foreign export prices, suggesting American firms and consumers bear almost all the burden in most sectors as companies work to reorganise supply chains.
“Among goods that continue to be imported, a 10 per cent tariff is associated with about a 10 per cent drop in imports for the first three months, but this elasticity doubles in magnitude in subsequent months,” the authors wrote. That suggests “the 2018 tariffs – many of which were applied in October – are only now having their full impact on US import volumes”.
A separate working paper circulated by NBER on Monday showed the 2018-19 tariffs also damped US exports.
While Americans bear the cost of tariffs in most sectors, the same does not apply in the politically important steel industry, the study by Amiti, Redding and Weinstein showed.
US President Donald Trump fulfilled a campaign promise when his administration put 25 per cent duties on imported steel in March 2018. The decision, meant to protect the industry from dumping practices by countries like China, was widely praised by producers, several of which announced plans to boost output.
The paper finds the European Union and nations including South Korea and Japan are shouldering almost half the cost of US steel tariffs.
China’s steel output expected to drop in 2020 after record 2019
That is good news for US companies demanding the metal, “but bad news for workers hoping that steel tariffs will bring back jobs”, the paper said.
It also may help explain why American steel production only increased by 2 per cent per year between the third quarter of 2017 and the third quarter of 2019 despite the 25 per cent steel tariffs, according to the authors.
The paper follows US Steel Corp’s December announcement that it would close its giant plant outside Detroit and lay off as many as 1,545 workers. Following this, US Commerce Secretary Wilbur Ross said the closure did not mean the import tariffs are not working.
The paper’s authors seem to disagree. “These results suggest that the steel tariffs have a much smaller capacity to protect steel workers than other tariffs,” they said.
