Trump’s Tariffs Are Producing Billions, But China Isn’t Paying (#GotBitcoin?)
President Donald Trump is right to say that his tariffs are generating billions of dollars for the U.S. But China and other countries aren’t paying them as he’s suggested. Trump’s Tariffs Are Producing Billions, But China Isn’t Paying (#GotBitcoin?)
Trump’s comments have suggested the U.S. is benefiting without paying, such as a Jan. 3 tweet that “the United States Treasury has taken in MANY billions of dollars from the Tariffs we are charging China and other countries that have not treated us fairly.” A day later he told reporters that “we’ve taken in billions and billions of dollars in tariffs from China and from others.’’
“Let me be very clear: Tariffs are taxes paid by American families and American businesses — not by foreigners,’’ Thomas Donohue, president of the U.S. Chamber of Commerce, said in his annual state of American business address last week.
Companies aren’t equivocating about the cost. Ford Motor Co. executives, speaking during the Deutsche Bank Global Automotive Conference in Detroit on Wednesday, said they see a $700 million headwind from duties this year. General Motors Co. said late last year that tariffs on steel and aluminum had already cost it $1 billion.
According to data from U.S. Customs and Border Protection, more than $13 billion in duties imposed by the Trump administration were assessed on imported goods as of Dec. 18. Actual collections could lag and be lower because of refunds and other factors, but Treasury Department reports show receipts from all customs duties have risen sharply since the tariffs took effect.
While Trump has suggested on Twitter and in public comments that tariffs are somehow being charged to or paid by China and other countries, trade economists say that’s generally misleading. U.S. importers of record are responsible for the duties, and ultimately U.S. businesses and consumers could pay through higher costs, they say.
Trump is “suggesting this is bringing in lots of new revenue and all of the burden is falling on the Chinese,’’ said Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs and a former senior economist for trade for President George W. Bush’s Council of Economic Advisers. “I think that’s mostly false.’’
Johns Hopkins University applied economics professor Steve Hanke, a member of the Council of Economic Advisers under President Ronald Reagan, put it more bluntly.
“Tariffs on Chinese imports are paid by Americans, not by the Chinese or their government. The President’s tariffs are simply a #tax on American consumers,’’ Hanke said on Twitter Jan. 6.
Hanke also pointed out that there are offsets to increased revenue from Trump’s tariffs, including as much as $12 billion in aid being paid to farmers after China slapped retaliatory tariffs on U.S. agricultural products.
The White House didn’t respond to messages seeking comment. Trump has said any economic pain from tariffs or retaliatory duties imposed by other countries will be outweighed by the long-term benefits from new trade deals.
The Trump administration imposed tariffs starting last January on foreign-made solar equipment and washing machines, then levied duties on steel and aluminum imports from March on the grounds of national security. He has slapped duties on about $250 billion in Chinese goods in response to a trade deficit and allegations of intellectual property theft and other unfair trade practices.
Customs and Border Protection collects the tariffs based on the price paid for shipments and the tariff rate in effect, and duties are charged when shipments are released into the U.S. The assessed amount now tops $13 billion, with $8 billion coming from the duties on Chinese goods, data provided by CBP show.
The duties are deposited in the U.S. Treasury. Customs duties increased by $8 billion in the final three months of 2018, an 83 percent gain from the year-ago period thanks in large part to tariffs imposed by Trump, according to estimates from the non-partisan Congressional Budget Office.
It’s not foreign governments paying, said Dan Anthony, vice president of The Trade Partnership, an economic consulting firm. U.S. businesses paid $2.8 billion in new Trump tariffs in October alone, The Trade Partnership determined in an analysis for Tariffs Hurt the Heartland, a coalition of business and agricultural groups lobbying against Trump’s duties.
Trump’s Trade War May Be Driving Chinese Investors To Bitcoin
As the Chinese yuan falls in value due to factors like the ongoing trade war with the U.S., there are signs that locals are increasingly moving funds into bitcoin.
According to a Bloomberg analysis of prices over 30 days, the negative correlation between the yuan and bitcoin has fallen to a record low in the last seven days.
While previously the Chinese government has sought to keep the value of its national currency above 7 CNY to the dollar, last month the yuan was allowed to slide below that level, dropping to its lowest for 10 years. The move was reportedly in response to U.S. President Donald Trumps threats in early August to impose a 10 percent tariff on Chinese imports.
That the drop in yuan value is causing a flight by Chinese investors is backed up by exchange data. Bloomberg spoke to Dr. Garrick Hileman, research director at Blockchain and CoinDesk contributor, who said that bitcoin prices on exchanges such as Huobi that cater more to Chinese traders are trading at a premium.
The inverse correlation between bitcoin and the yuan also notched up in April and May “as the tensions ratcheted up with the deterioration on U.S.-China trade relations,” Hileman said.
The report comes as new details emerge on China’s own national digital currency. The recently appointed chief of the digital currency division of the People’s Bank of China has said the upcoming digital yuan will have features not offered by Facebook Libra.
U.S. Collects a Record $7 Billion in Tariffs in September
Tariff revenue jumped 9% from August and was up more than 59% from a year earlier.
The U.S. collected a record $7 billion in import tariffs in September, fresh figures show, as new duties kicked in on apparel, tools, electronics and other consumer goods from China.
Tariff revenue jumped 9% from August and was up more than 59% from a year earlier. The revenue is a bounty for the U.S. Treasury, but is an increasing burden on the American businesses that import Chinese products—and their customers.
The new figures are based on an analysis of official Commerce Department data compiled by Trade Partnership, an economic consulting firm. The data was released by Tariffs Hurt the Heartland, a coalition of business and agricultural groups who oppose the tariffs.
Last month’s sharp rise was driven by a new 15% levy on consumer goods that went into effect Sept. 1. Imports of these items were valued at $111 billion last year, according to an analysis by The Wall Street Journal.
The U.S. has always collected tariffs on some items, but those duties have soared under a series of new levies that President Trump ordered on Chinese imports beginning last year. Mr. Trump said the duties were needed to get China to curtail trade practices that penalize U.S. businesses.
The tariffs are assessed directly to importers in the U.S., although Mr. Trump has at times claimed China pays them. But when he postponed a batch of tariffs until Dec. 15, he said he didn’t want to cast a pall over the holiday shopping season.
Still, the rising cost of the tariffs has increased pressure from business groups to resolve the trade dispute.
“It’s a massive expansion of taxation on American employers and consumers,” said Peter Bragdon, chief administrative officer of the Columbia Sportswear Co., whose firm had many apparel items hit in the latest tranche of tariffs. The company has notified customers that they would have to raise prices on many of those items, he said.
The Trump administration is considering removing some of the tariffs against China as part of the negotiations over “phase one” of a U.S.-China trade deal.
The first major tariffs were placed on global imports of steel and aluminum in March 2018, but tariffs from China began in July 2018 and have been increased on several different lists of goods. The increased tariff rates on those lists have become the vast bulk of duties collected.
More than $5 billion was collected on imports from China last month, with tariffs assessed to the rest of the world garnering about $2 billion. The new tariffs imposed on the European Union in October, imposed after a long-running dispute at the World Trade Organization over aircraft subsidies, aren’t yet included in the data.
In the 12 months through September, the U.S. brought in more than $70 billion in tariffs, according to data from the Treasury Department. That figure is about double the amount of tariff revenue from before the trade war.
While tariff collections have increased, so have trade-war related expenses. To help mitigate the losses to U.S. agricultural exporters, who have suffered from international tariff retaliation, the Agriculture Department has authorized $28 billion in payouts to farmers.
The figures only account for the direct burden of the tariffs, said Dan Anthony, vice president of the Trade Partnership.
“This is very much the low-end estimate of costs, because there’s also costs associated with shifting suppliers, shifting to higher-cost sources, that aren’t going to show up in the data,” said Mr. Anthony.
U.S. Tariffs On China Have Oddly Little Effect On Import Prices. What’s Going On?
Chinese exporters not cutting prices despite losing market share.
Trainees work in a garment factory in China. High U.S. tariffs have had a puzzling lack of impact on the price of Chinese imports.
Steep U.S. tariffs on most Chinese goods have had a puzzling lack of influence on import prices, raising questions about who exactly is paying the lion’s share of higher duties.
It’s not the Chinese, at least not directly. American businesses and consumers are bearing the biggest direct cost of billions in dollars in U.S. tariffs, a wave of research has found.
What’s far less clear is how the burden is split, according to the New York Federal Reserve.
The Trump administration launched its first broadside against China in July 2018 with a round of tariffs. Duties up to 25% have since been levied on some $370 billion in imports, encompassing most Chinese goods sent to the U.S. market each year.
Tariffs are collected when Chinese products enter ports in cities such as Los Angeles, Miami and Savannah, Ga. They are paid by the U.S.-based companies that receive the goods.
One thing is quite clear, the Fed study said. Chinese companies themselves haven’t swallowed most of the cost tied to U.S. tariffs, as President Donald Trump has frequently contended.
Chinese firms could have cut prices to ease the financial burden on their American partners, the Fed said, but the reduction would have had to equal about 20% to fully offset the effects of a 25% tariff.
Instead Chinese prices have fallen just 2% or so since the tariffs first went into action.
“This drop is a small fraction of the amount required to offset the increase in tariff rates,” the New York Fed said.
Even that doesn’t appear to be noteworthy. The cost of imports from countries not affected by the tariffs, such as Mexico and South Korea, have fallen by about the same amount.
The Chinese currency, meanwhile, has declined 10% in value vs. the dollar since tariffs were enacted. So Chinese suppliers could in theory cut prices they charge U.S. importers by the same amount to relieve the harm.
Instead, Chinese companies seem to have padded their own profits to offset the decline in demand tied to U.S. tariffs, the Fed said.
Why haven’t Chinese firms cut prices more deeply to protect against the loss of U.S. market share?
Their profit margins may already be razor thin. They might not have many competitors. Or they may worry that cutting prices for U.S. customers will spur non-U.S. customers to demand the same, the Fed said.
Whatever the case, there’s no doubt that demand for Chinese goods has abated. In fact, the U.S. has raised just two-thirds of the revenue through tariffs that should have been expected largely because of a decline in Chinese imports.
The Fed said imports of Chinese products affected by U.S. tariffs have fallen by an annualized $75 billion. That’s a huge chunk of business that’s gone to Europe, Japan and other Asian countries.
These are the kinds of losses that have pushed China to resume negotiations with the U.S. The two countries are struggling to announce the first step of a broader agreement.
China’s share of the U.S. market for machinery and electrical equipment, for example, has fallen about 2 percentage points since 2017. And it’s portion of the U.S. electronic market has tumbled 6%.
“Regardless of whether consumers or businesses bear the burden, sustained high tariffs on Chinese goods will encourage a search for alternative suppliers,” the New York Fed said in a report written by researchers Matthew Higgins, Thomas Klitgaard and Michael Nattinger.
One caveat: Some companies may be shifting the final stages of production for goods largely made in China to third countries to avoid the tariffs. How much is impossible to say.
Bigger Burden On Business
It’s even harder to figure out how the cost of tariffs is split, the Fed said, between U.S. wholesalers at the port of entry, retailers who sell the products and consumers who eventually buy them.
The Fed pointed out there’s not much data or research to make accurate estimates because heavy tariffs largely fell into disuse among the wealthiest nations after World War Two.
The most likely scenario is that U.S. companies have largely absorbed the cost of tariffs by accepting lower profits given the strong resistance by customers to higher prices. Companies have been unable to raise prices very much for years.
There’s one other intriguing possibility, the Fed suggested: Companies may be leaving reported import prices unchanged to reduce their U.S. profits and lower their tax burden.
China Trade War Didn’t Boost U.S. Manufacturing Might
Factory production peaked in 2018, data show; Trump advisers say tariff campaign will yield benefits over time.
President Trump’s trade war against China didn’t achieve the central objective of reversing a U.S. decline in manufacturing, economic data show, despite tariffs on hundreds of billions of dollars of Chinese goods to discourage imports.
The tariffs did succeed in reducing the trade deficit with China in 2019, but the overall U.S. trade imbalance was bigger than ever that year and has continued climbing, soaring to a record $84 billion in August as U.S. importers shifted to cheaper sources of goods from Vietnam, Mexico and other countries. The trade deficit with China also has risen amid the pandemic, and is back to where it was at the start of the Trump administration.
Another goal—reshoring of U.S. factory production—hasn’t happened either. Job growth in manufacturing started to slow in July 2018, and manufacturing production peaked in December 2018.
Mr. Trump’s trade advisers nonetheless say the tariffs succeeded in forcing China to agree to a phase one trade deal in January, in which Beijing agreed to buy more U.S. goods, enforce intellectual property protections, remove regulatory barriers to agricultural trade and financial services and to not manipulate its currency.
They also say the tariffs—which remain on about $370 billion in Chinese goods annually—will over time force China to end unfair practices and help rebuild the U.S. manufacturing base.
Tariffs “are having the effect of bringing manufacturing jobs back to the U.S.,” U.S. Trade Representative Robert Lighthizer said in an interview, citing statistics that show a net gain of 400,000 U.S. manufacturing jobs from November 2016 until March 2020, when the pandemic forced widespread factory closures.
However, about 75% of the increase in manufacturing jobs occurred before the first tranche of tariffs took effect against China in July 2018, when annual growth in manufacturing jobs peaked and then began to decline. By early 2020, even before the pandemic reached the U.S., manufacturing job growth had stalled out, and factories shed workers in four of the six months through March.
An industry-by-industry analysis by the Federal Reserve showed that tariffs did help boost employment by 0.3%, in industries exposed to trade with China, by giving protection to some domestic industries to cheaper Chinese imports.
But these gains were more than offset by higher costs of importing Chinese parts, which cut manufacturing employment by 1.1%. Retaliatory tariffs imposed by China against U.S. exports, the analysis found, reduced U.S. factory jobs by 0.7%.
Mr. Trump is one of a long line of U.S. presidents to use tariffs to protect favored industries. President Obama put steep tariffs on Chinese tires, President George W. Bush imposed tariffs on steel and President Reagan hit Japanese televisions and computers.
But Mr. Trump’s enormous increase in tariffs on Chinese goods represented a sharp departure in post-World War II economic history. Since the war, the U.S. has led round after round of global trade talks aimed at reducing tariffs. No longer.
“This is the biggest use of tariffs since the Smoot-Hawley tariffs” during the Great Depression, said Chad Bown, a trade expert at the Peterson Institute for International Economics. “The economic impact is going to take years to play out.”
Mr. Trump has called himself a “tariff man” and said businesses that complain about the impact of tariffs should simply build factories in the U.S.
“I happen to be a tariff person because I’m a smart person, OK?” Mr. Trump said in an interview with The Wall Street Journal in November 2018 as the trade war intensified. “We have been ripped off so badly by people coming in and stealing our wealth.”
The tariff strategy, however, played out differently for manufacturers depending on their individual circumstances. That is shown by the experience of two Midwestern manufacturers, Atlas Tool Works Inc. and Hemlock Semiconductor Operations.
Illinois-based Atlas said sales of its brackets, gears and conveyor belts used in manufacturing rose 18% in the year after Mr. Trump placed tariffs on similar parts from China. But Hemlock, a Michigan company that makes polysilicon used in computer chips and solar cells, is still struggling.
The phase one trade deal signed by Washington and Beijing in January specified that China would buy more U.S. solar-grade polysilicon, Hemlock’s main product. But China never lifted its tariffs on polysilicon—just as the U.S. kept tariffs on most Chinese imports—and Hemlock didn’t register any gains.
“We’ve reached out to Chinese companies, ‘Are you interested in buying polysilicon?’” said Phil Dembowski, Hemlock’s chief commercial officer. “But they all tell us the same thing—no mechanism to import it without paying duties. They’d like to, but they can’t afford that tariff.”
Atlas, by comparison, was able to benefit from the tariffs because it shuns Chinese suppliers—a point of pride for the family-owned business founded in 1918.
The company says it was forced to close a lucrative business supplying telecom-gear makers in the early 2000s because of Chinese competition. Atlas refocused on fabrication equipment for the defense and health-care industries, but that eventually came under assault from cut-rate Chinese competition too, according to owner Zach Mottl.
When Mr. Trump approved tariffs in 2018, sales boomed. Atlas had no Chinese suppliers, so its costs remained stable. The company, which had about 100 employees before tariffs, added about two dozen new positions.
“We saw the uptick right away when the tariffs hit,” Mr. Motti said.
But for companies including Hemlock, the tariffs backfired. Rather than pressuring Beijing to open markets, China responded with retaliatory tariffs that made Hemlock’s products more expensive there. And U.S. companies that buy parts from China suddenly faced higher costs.
U.S. trade negotiators recognized that many U.S. companies, like Hemlock, were dependent on Chinese supply chains, and sought to get China to agree to pare back its industrial subsidies. But the U.S.-China trade deal signed Jan. 15 failed to achieve that goal, which was put off for future talks that have yet to materialize.
Mr. Trump and his opponent, former Vice President Joe Biden, have tangled over whether the president’s trade and tariff policies have brought back factory jobs. “They gave up on manufacturing,” the president said of Messrs. Biden and Obama in the first presidential debate.
Mr. Biden was equally dismissive of the Trump record during the session, saying that “manufacturing went into the hole” even before the pandemic.
Even so, Mr. Biden’s top advisers don’t commit to rolling back the Trump tariffs on China. Rather, they say the vice president would consult with allies on what to do about the levies. “Tariffs would be among the tools we would consider in an allied approach,” said senior Biden adviser Jake Sullivan.
Derek Scissors, a resident scholar at the conservative American Enterprise Institute, initially supported the Trump administration’s approach to China, but now says the effort largely failed to achieve its objectives.
“There are reasons to apply tariffs, there are reasons the bilateral deficit can matter, but it’s not the big payoff of manufacturing jobs,” Mr. Scissors said.
Mark Bassett, the CEO of Hemlock, was enthused to see the Trump administration’s efforts to level the playing field in the solar industry. But he came to believe more fundamental changes were needed for his company and others that compete against Chinese rivals who are subsidized by Beijing.
“You need to take a look at things a little more holistically, rather than a whack-a-mole methodology,” Mr. Bassett said, comparing tariffs to the arcade game in which targets keep popping up.
Chinese companies that make solar panels bought $1 billion of American polysilicon, like Hemlock’s, in 2010. Anticipating continued strong sales to China, Hemlock spent more than $1 billion to build a new factory in Clarksville, Tenn., that was completed in 2012.
But China had plans of its own. Solar was specifically identified as a strategic industry for Chinese dominance in “Made in China 2025,” the country’s national plan to dominate high-tech manufacturing. That plan included making solar-grade polysilicon—turning China into a competitor to Hemlock instead of a customer.
Solar-grade polysilicon exports to China had shriveled to $107 million by 2018. The plant in Clarksville never operated, and was closed in 2014.
“It’s the classic Chinese industrial story,” said Mr. Bassett. “Continued subsidization, no requirements to deliver a return on investment, no enforcement of environmental or safety standards. An artificially low price that drives everyone else out of business.”
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