In delaying fresh tariffs on Chinese imports, Trump faces up to economic reality at home

President Trump admitted the possibility that he could be wrong that China alone is bearing the costs of his trade war with Beijing.
President Trump admitted the possibility that he could be wrong that China alone is bearing the costs of his trade war with Beijing.PHOTO: NYTIMES

WASHINGTON (NYTIMES) - United States President Donald Trump's tariffs on Chinese imports are forcing Americans to pay more for everyday products. Many economists have shown this.

If one looks at the appropriate inflation data, such as the rising price of imported home furnishings, one can see the effect.

President Trump still does not see it - he continues to claim, incorrectly, that China alone is bearing the costs of his trade war with Beijing. But he admitted at least the possibility that he could be wrong about that on Tuesday (Aug 13), conceding that Americans could start paying more for many products if his latest round of tariffs went through as planned.

He acknowledged it when the administration said it would delay imposing a 10 per cent tax on some Chinese goods, including electronic devices and toys, to avoid putting a chill into this year's holiday spending.

"We're doing this for Christmas season, just in case some of the tariffs would have an impact on US customers," Mr Trump said, before veering back towards his usual line by adding, "which, so far, they've had virtually none".

Continuing his remarks, the president again swung between both positions.

"The only impact has been that we've collected almost US$60 billion (S$83 billion) from China - compliments of China," he said. "But just in case they might have an impact on people, what we've done is we've delayed it so that they won't be relevant for the Christmas shopping season."

There were at least a couple of inaccuracies in Mr Trump's comments, starting with how much money the Treasury had collected as a result of the tariffs. The Customs and Border Protection agency puts the figure at US$24 billion through Aug 7 - less than half of what Mr Trump claims.

But his concession that consumers could wind up paying more for holiday gifts because of the tariffs is true based on the best available research on who is footing the bill for the trade war so far.

The reality of what economists call the "incidence" of Mr Trump's China tariffs is a complicated tale of profits, supply chains, competition and policy design. Here's what we know about it to this point.


When Mr Trump first imposed tariffs on Chinese imports last year, he targeted US$50 billion worth of goods that were mostly the kinds of things that American companies purchase to manufacture other products, and not items that shoppers typically buy at the mall or online.

He later imposed tariffs on an additional US$200 billion of Chinese goods, initially at a rate of 10 per cent and then at a rate of 25 per cent. That batch of tariffs affected more consumer products than the first round, but popular retail goods like clothes and mobile phones were left off the list.

This month, Mr Trump threatened a 10 per cent tariff on about US$300 billion in imports, or almost all of the Chinese goods that had not yet been taxed. Some of those tariffs will take effect on Sept 1 as planned.

The move announced on Tuesday, which also excluded some products, like car seats, from the new tariffs entirely, means a large swath of Chinese imports would not be hit with tariffs until Dec 15. That effectively staves off any tariff-related price increases for those products until after holiday shopping has started.

Thus far, the tariffs have not been a huge burden for consumers. Data from the customs agency shows that all of the China tariffs together raised US$24 billion through Aug 7. That works out to roughly a 5 per cent tax rate on the total value of imports from China since Mr Trump first began imposing the levies. As the list has grown, the pace at which revenue from the tariffs is collected has increased. The next round of tariffs will accelerate it even further.


Inflation remains below the Federal Reserve's 2 per cent target rate, a fact that Mr Trump sometimes cites as evidence that the tariffs have not raised prices. That is a leap of logic. The overall inflation rate is too broad, encompasses too many prices and is affected by too many other factors to declare there has been no effect on consumers.

In February, economists at the Federal Reserve Bank of San Francisco estimated that the first wave of China tariffs would raise the inflation rate by 0.1 percentage points. They predicted that a possible expansion to 25 per cent tariffs on all Chinese imports, still short of what Mr Trump has announced, would add an additional 0.3 percentage points.

Goldman Sachs researchers echoed that finding in a note this week. They did so by analysing changes in inflation for a group of goods that has been, or is about to be, directly affected by the tariffs. The sample is narrower than the one that determines the overall inflation rate, which makes tariff-related movement easier to spot.


"Our analysis of consumer prices, imports, and tariff rates in tariff-affected goods categories suggests that most tariff costs were passed on to consumers, and that there were sizeable price spillovers as well," the analysts wrote.

Mr Ian Shepherdson, the chief economist at research firm Pantheon Macroeconomics, spotted an even greater effect this week by focusing on two types of goods already subject to the tariffs: floor coverings, and furniture and bedding.

Both experienced price increases in July. The increases, he wrote this week, "are tariff effects, and offer a taste of what would happen if the administration imposes tariffs on a wide range of imported Chinese consumer goods next month".


It is important to note that consumers almost certainly are not paying the full price of the tariffs, even on Chinese goods that they buy in stores. That is because retailers like Target and Walmart and companies that make a lot of goods in China, such as home-lighting manufacturers, have several options when tariffs are imposed.

Such companies can shift their supply chains, moving factory production to other low-cost countries, like Vietnam. They can demand price concessions from suppliers. They can choose to accept lower profits. Or they can pass price increases straight to consumers.

Consumers do not like paying higher prices, so companies are trying to find as many ways as possible to avoid going that route. The higher the tariff rate rises, though, the harder that becomes.

Department store giant Macy's said on Wednesday that consumers had been unhappy about price increases on some Chinese goods already subjected to tariffs this year. Chief executive Jeff Gennette said that consumers would have no appetite for price increases on the new round of products targeted by Mr Trump, and that Macy's would try to avoid passing them on.

Mr Gennette said such a strategy would be manageable for the 10 per cent rate that Mr Trump has said he planned to impose in the coming round of tariffs. But if the rate were to go to 25 per cent, "you're dealing with a whole other series of dynamics", he said. "I would not say we wouldn't have to raise prices."