For months now, Donald Trump has insisted that China is “paying for” the tariffs he has placed on their exports: “We’re [currently] collecting 25% on $250 billion [worth of Chinese products], and China is paying for it … Don’t let anyone tell you that we’re paying. We’re not paying.”
The president never explained how Beijing could possibly be “paying” the taxes he has imposed on various products and inputs that American firms and consumers import from China. It is possible that some Chinese businesses have lowered prices on their exports to remain competitive in the U.S. market. But if so, this practice has been far from universal. According to research from economists affiliated with Princeton, Columbia, and the Federal Reserve Bank in New York, the president’s tariffs cost U.S. firms $3 billion a month last year as a result of price hikes and disrupted supply chains. Thus, when Trump boasts about how much revenue his trade policies are generating for the Treasury Department, he is effectively bragging about how much he has raised taxes on ordinary American shoppers. And on Tuesday, the president finally (tacitly) admitted as much.
Through the first two years of its trade war with China, the Trump administration tried to minimize economic casualties by concentrating tariffs on commercial inputs instead of popular consumer goods. But as the conflict has continued, Trump has run out of low-salience Chinese imports to punitively tax. On September 1, the U.S. was scheduled to slap a 10 percent tariff on $300 billion of Chinese goods — including video-game consoles, computer monitors, clothing, footwear, toys, and miscellaneous electronics.
But on Tuesday, the White House thought better of it and dropped all those items from its list. “We’re doing this for the Christmas season,” Trump told reporters on Tuesday. “Just in case some of the tariffs would have an impact on U.S. customers.”
The president did not explain how the proposed tariffs could have an impact on American customers, given his past assurances that Chinese nationals pay all the taxes the U.S. government imposes on imported goods. Regardless, Wall Street greeted the news with a spasm of ecstatic relief that sent the S&P 500 up 1.5 percent.
Barring a breakthrough in negotiations, the White House insists that the duties on those high-demand consumer goods will still come into force on December 15. Presumably, at that point, Trump will rediscover his idiosyncratic theory about the relationship between tariffs and consumer prices.