The High Price of Tariffs

Sep 20, 2018 - 12:30pm

Senior Vice President for International Policy

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A container ship sits docked a the Port of Oakland in Oakland, CA.
A container ship sits docked a the Port of Oakland in Oakland, CA.

On Monday the White House announced it had “directed the United States Trade Representative (USTR) to proceed with placing additional tariffs on roughly $200 billion of imports from China”.

While popular rhetoric suggests that tariffs are “slapped” on a foreign country, tariffs are of course taxes paid by Americans. It’s U.S. consumers, not foreigners, who are stuck with the bill – in this case, a multi-billion dollar bill that we will all have to pay.

Earlier waves of tariffs imposed over the past few months on imports of steel, aluminum, and a host of Chinese products have already impacted about $100 billion of U.S. imports. They also spurred price increases for U.S.-made products: for example, several U.S. steel benchmarks have risen by more than 40% since the beginning of the year.

And American tariffs have triggered retaliatory tariffs against about $100 billion of U.S. exports. We’ve mapped the state-by-state impact of this retaliation at www.TheWrongApproach.com.

However, there’s no denying the approximately $200 billion tariff hike slated for September 24 marks a big escalation.

Consumer harm

How will it affect consumers and businesses? In the table below, the Geneva-based International Trade Centre has helpfully broken down the top import categories that will be hit with new tariffs on September 24 (using U.S. data).

Examining the broad product categories, it’s worth recalling the adage that when you tax something, you get less of it.

So what’s covered?

First, things that make us more productive, starting with computers and computer components such as circuit boards. These are products that make factories and services enterprises efficient. They allow us to manage inventory, logistics, and finances. They are increasingly central to modern education. They are the secret sauce of the modern economy – and we’ll be paying more for our productivity going forward.

“The price of printed circuit assemblies from China – will increase by between nine and 23 percent,” the Consumer Technology Association said in August.

Louroe Electronics of Van Nuys, CA, uses electronic capacitors for its audio monitoring technology. CEO Richard Brent told the U.S. Chamber, “I will have no choice but to pass through the cost on to the customer.”

Second, things that furnish our homes, from furniture (like baby cribs) and lighting fixtures and components to vacuum cleaners, gas grills, and air conditioners. If you’re considering moving into a new home, or if you are considering replacing aging home essentials, expect to pay more.

Third, car parts such as wheels and brakes will be impacted. China is not a major source of U.S. vehicle imports but does ship about 12% of U.S. auto parts imports. Automakers will feel the impact, as will many U.S. auto parts manufacturers that make some items in China.

Tax increase

Add it all up, and these tariffs represent a sizeable hit to the American taxpayer.

It gets worse, according to a National Taxpayers Union Foundation analysis: “If an additional 25 percent tax on imported cars and parts is implemented, Trump tariffs would offset nearly half of the tax cuts Americans are supposed to receive next year thanks to the 2017 Tax Cuts and Jobs Act (TCJA). Threatened taxes on another $267 billion in imports from China, if imposed, would add even more to the escalating cost of the Trump administration’s trade policy.”

Economic harm

The impact of these tariffs on the broader economy is just beginning, but even at the peak of today’s long-running economic expansion, the pain is real – and for more than a few unlucky Americans.

According to an analysis by the Tax Foundation, the tariffs planned and enacted to date would reduce long-run GDP by $30 billion and eliminate 94,303 full-time equivalent jobs.

If all tariffs announced thus far were fully enacted – including those proposed on autos and auto parts, additional tariffs on imports from China, and foreign retaliation – they would “effectively offset one-third of the long-run impact of the Tax Cuts and Jobs Act.” Nearly half a million American jobs would be lost.

In sum, tariffs are taxes, and for more and more Americans, the price is high.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.