U.S. Consumers And Firms Paying Higher Prices Due To Trump’s Higher China Tariffs

Donald Trump
(Photo: REUTERS/Jonathan Ernst)

The cost and pain inflicted by the tariff war being waged by president Donald Trump against China are being borne "entirely" by U.S. consumers and business firms, says investment bank and financial services company The Goldman Sachs Group.

Goldman noted that consumer prices throughout the U.S. are increasing partly because Chinese exporters have not lowered their prices to better compete in the U.S., making their products more expensive.

In a revision of reality, however, Trump has repeatedly claimed China is paying for tariffs imposed by the U.S.

But on Sunday, Trump's lie that his tariffs on Chinese goods are being paid for by the Chinese government was repudiated by Larry Kudlow, his own Director of the National Economic Council.

In an interview on Fox News Sunday, Kudlow admitted the Chinese government doesn't directly pay tariffs on Chinese goods coming into the U.S. Instead, American importers pay these higher duties to the U.S. government. Importers then make-up the higher tariffs by passing on the cost to U.S. consumers in the form of higher prices for goods and commodities.

Trump has kept insisting -- and without offering any proof -- the Chinese government is paying for these tariff hikes. Trump's argument has long been dismissed as an outright falsehood by many economists.

 "It's not China that pays tariffs," said host Chris Wallace. "It's the American importers, the American companies that pay what, in effect, is a tax increase and oftentimes passes it on to U.S. consumers."

"Fair enough," replied Kudlow, who pointed out China doesn't actually pay the tariffs.

Goldman said one might have expected that Chinese exporters of tariff-hit goods would have to lower their prices somewhat to compete in the US market, sharing in the cost of the tariffs. This hasn't happened.

"However, analysis at the extremely detailed item level in the two new studies shows no decline in the prices (exclusive of tariffs) of imported goods from China that faced tariffs," wrote Goldman Sachs

U.S. producers also "opportunistically" increased prices in response to protection from Chinese competitors. Goldman also said the risk of a final round of tariffs on $300 billion of remaining imports from China has now risen to 30 percent.

It said further escalation of the trade war could also result in a 0.4% reduction to U.S. GDP this year, and if trade tensions instigated a sell-off in the equity market, the growth impact might worsen.

"Our baseline expectation is that the U.S. and China will strike a deal later this year. We think this would come in the form of a gradual, staggered reduction in tariffs on a last-in, first-out schedule," said Goldman Sachs.

"There is, however, a risk of further escalation."

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