Trump’s Tariffs on Chinese Imports Are Actually a Tax on the US Middle Class

24-09-18 04:50:00,

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In his escalating trade war with China, Donald Trump is acting increasingly like Captain Queeg in the Caine Mutiny. He has imposed a 10 percent tariff on $200 billion in US imports from China, a rate he proposes to increase to 25 percent at the start of the next year. He also is threatening tariffs on the rest of our imports from China, an additional $300 billion in goods and services.

The straight arithmetic tells us that 10 percent of $200 billion is $20 billion on an annual basis. If this rises to 25 percent next year, the tariffs would be $50 billion. If we add in 10 percent tariffs on another $300 billion, that comes to $30 billion, bringing the total to $80 billion.

While Trump talks as though he thinks his tariffs are taxing China, they aren’t. Most immediately, they are a tax on US households. The full $80 billion would come to a bit less than $600 per household.

It is true that the tariffs will not be passed on dollar for dollar. Some companies will decide it’s better to see their profit market squeezed than pass on the full price increase. This means that Apple and Nike may not raise the price for the iPhone and running shoes by the full amount of the tariff.

In that case, a portion of the tax will be borne by US companies manufacturing items in China. This is fine, since corporate profits are near record highs as a share of GDP. But, this is still not taxing China.

There will be some spillovers where either Chinese companies importing items to the US end up with less money or Chinese suppliers selling to US companies are forced to accept less money,

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