How U.S. Consumers Pay for Tariffs on Chinese Imports

U.S. tariffs on imports are producing higher prices for consumers and decreased profit margins for businesses, and those negative economic impacts are greater than the taxes collected. “Our results imply that the tariff revenue the U.S. is now collecting is insufficient to compensate the losses being borne by the consumers of imports,” per a study published in March by economists from the Federal Reserve Bank of New York, Princeton University and Columbia University, as cited by Bloomberg.

"Countries imposing tariffs and countries subject to tariffs would experience losses in economic welfare, while countries on the sidelines would experience collateral damage," concludes a report by global analytics firm IHS Markit.

President Trump threatens to raise the tariff from 10% to 25% on roughly $200 billion of annual imports from China, while also charging 25% on roughly another $340 billion that is currently untaxed. The table below lists the largest categories among the $200 billion total.

Top 10 Chinese Imports Facing Tariff Hike From 10% to 25%

(Annual Value of U.S. Imports From China)

  1. Telecom equipment, $19.1 billion
  2. Computer circuit boards, $12.5 billion
  3. Processing units, $5.6 billion
  4. Metal furniture (not seats), $4.1 billion
  5. Computer parts, $3.1 billion
  6. Wooden furniture, $2.9 billion
  7. Static converters, $2.7 billion
  8. Vinyl tile floor coverings, $2.5 billion
  9. Seats with wooden frames, $2.5 billion
  10. Car parts, $2.3 billion

Total of the above items: $57.3 billion

Source: U.S. International Trade Commission, as reported by Bloomberg

Significance for Investors

Consumer spending represents about 68% of U.S. GDP, per the Federal Reserve Bank of St. Louis, and tariff-induced price increases will dampen demand. Corporate profits also will suffer, given lower customer demand or lower profit margins when tariff-induced cost increases cannot be passed along in higher prices. Reduced profits inevitably hurt stock prices.

Total U.S. imports from China were $540 billion in 2018, per The table below lists the biggest categories of Chinese imports that are currently untaxed (about $340 billion in total) but which Trump proposes to hit with a 25% tariff.

Top 5 Chinese Imports Currently Exempt From U.S. Tariffs

(Annual Value of U.S. Imports From China)

  1. Cellphones, $44.8 billion
  2. Laptop computers, $38.7 billion
  3. Wheeled toys, puzzles, scale models, $11.9 billion
  4. Video game consoles, $5.4 billion
  5. Computer monitors, except LCD or CRT displays, $4.6 billion

Total of the above items: $105.4 billion

Source: U.S. International Trade Commission, as reported by Bloomberg

Cumulative tariffs assessed on imports from China, from the start in 2018 through April 10, 2019, has been almost $15.3 billion, per U.S. Customs and Border Protection, as reported by Bloomberg. However, actual collections are likely to be lower, due to refunds and other matters.

In his tweet on May 5, 2019 announcing his proposed tariff hikes, Trump stated, “the Tariffs paid to the USA have had little impact on product cost, mostly borne by China.” However, David Weinstein, a professor of economics at Columbia and a co-author of the Federal Reserve paper cited above, said that data from 2017 and 2018 show that foreign firms have not reduced prices in response to U.S. tariffs, meaning that U.S. consumers and businesses foot the entire bill. Another paper, released in March by the World Bank with co-authors from UCLA, the University of California, Berkeley, and the Columbia Business School, reached the same conclusion, Bloomberg adds.

Looking Ahead

“Workers in very Republican counties bore the brunt of the costs of the trade war, in part because retaliations disproportionately targeted agricultural sectors,” according to the World Bank study. This may have big ramifications for the 2020 campaign.

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