President Donald Trump often highlights money the government earns from his trade war with China, sometimes falsely claiming that tariffs are paid by foreign exporters. A new study, however, estimates that the latest tariff escalation will actually cause government income to fall while nearly doubling costs for American consumers.
After Washington said Beijing reversed on previous trade commitments last week, Trump hiked the tariff rate on $200 billion worth of Chinese imports to 25% from 10%. The increase will cost the average household $831 per year, economists at the Federal Reserve Bank of New York, Columbia, and Princeton said Thursday.
Domestic prices at the border have risen one‑for-one with the tariffs last year, according to the New York Fed. But the steeper tariff rate is expected to lead more companies to switch suppliers, meaning the government would bring in less revenue from tariffs even as costs to Americans jump.
“Very high tariff rates can thereby cause tariff revenue to fall as buyers of imports stop purchasing imports from a targeted country and seek out imports from less efficient producers in other countries,” the report said.
But there is no government income to offset these costs, deepening deadweight and efficiency losses from tariffs.
“In sum, according to our estimates, these higher tariffs are likely to create large economic distortions and reduce U.S. tariff revenues,” the report said.
President Donald Trump has threatened to slap a 25% tariff on all imports from China, a move that would set the stage for retaliation. Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, told the Washington Post he estimates that would cost the average household about $2,200 per year.