MINNEAPOLIS (WCCO) – On Monday, China announced a new round of tariffs in retaliation for American tariffs that were put in place last week.
President Donald Trump has argued that China will pay for the new tax on imports.
“Our country can take in $120 billion in tariffs, paid for mostly by China by the way, not by us,” Trump said when discussing the new 25% tariff on $200 billion worth of Chinese imports.
But is that really how tariffs work? Good Question.
“No,” says Robert Kudrle, an international trade expert at the University of Minnesota. “While it’s true a seller bears some part of that tax, most of it is borne by the person who buys that good.”
A tariff is defined as a tax on imports from other countries. Before World War II, it was a way for the federal government to raise money. Now, it’s used mostly as a move to protect American industry.
For example, if the U.S. put a 15% tariff on a $100 chair from China, the cost of the chair to the American customer would be $115.
According to the U.S. Trade Representative, about half of industrial goods come to the U.S duty-free. In 2016, the average tariff was 1.6%.
On Sunday, White House economic advisor Larry Kudlow broke from the President when talking about who would pay for the tariffs.
“In fact, both sides will pay. Both sides will pay,” he said.
When a tariff is imposed, the importer pays the tariff and generally passes it along.
“They will likely pass a lot of that onto the consumer,” CBS News Business Analyst Jill Schlesinger said.
According to two studies, estimates indicate current tariffs on Chinese goods have already cost American families between $400 and $700 a year.
“That could double with the new taxes,” Kudrle said. “I would say low-income families are being hurt most by tariffs, while also pointing out farmers have been financially strained as well.”
The Trump administration has maintained tariffs are an important tool to correct unfair trading practices with China. As for what might happen in the end, Kudrle says it’s unclear.
“That’s the thing, we don’t really know because this is so unprecedented,” he says. “Now, we’re in unchartered territory.”