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Who Pays the Tariffs on China Imports?

June 18 , 2019

Americans are generally in favor of trade - 56% of U.S. adults said that free trade agreements have been good for the country as a whole, according to a 2018 Pew Research Center poll. Trade lowers consumer prices, leads to a greater selection of products, and opens new markets for Americans to sell their products. 

However, 62% of Americans believe trade with China is unfair, and that America has drawn the short end of the stick.

Since January 2018, China and the United States have been embroiled in a trade war, as President Trump has argued that China has unfairly tilted the playing field against U.S. businesses and encouraged a harmful U.S. trade deficit. 

Now, President Trump has once again hiked tariffs on $200 billion worth of Chinese products from 10% to 25%. He has also threatened to slap that amount onto another $325 billion worth of goods. 

So, what will this mean for U.S.-China trade, and who will end up paying these tariffs?

According to Trump, the tariffs will be paid by the Chinese and the revenue will be used to help American farmers who have lost their lucrative export market for soybeans, pork, and other products due to retaliatory tariffs imposed by China. Already, the U.S. government is handing out billions of dollars of aid to soften the economic blow on farmers.

But studies show that the opposite of Trump’s sales pitch is true. 

Rather than China footing the bill, Trump’s tariffs are actually paid by U.S. import companies, who often pass the tax on to U.S. consumers and manufacturers by increasing prices. In fact, tariffs on Chinese products, ranging from diapers to iPhones, could end up costing the average American family more than $2,000-- far more than the average tax benefits received from Trump’s 2017 tax reform.

The pain will be felt most acutely by lower-income voters and farmers – the core of Trump supporters.

As the 2020 Presidential election nears, Trump is doubling down on tariffs as a success strategy, making the case to Americans, particularly farmers selling their agriculture to China, that the long-term goal of the trade war far transcends the short-term pain.

If the tariffs do go into effect and the U.S.-China trade war drags on, Wall Street will brace for impact, and the global economy will likely suffer until the two nations reach a deal to end the war. 

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