Explainer: Who pays Trump’s tariffs, China or U.S. customers and companies?

Explainer: Who pays Trump's tariffs, China or U.S. customers and companies?

May 12, 2019– Mary Greeley News – CHICAGO (Reuters) – U.S. President Donald Trump says China pays the tariffs he has imposed on $250 billion of Chinese exports to the United States but that is not exactly the way tariffs work.

“For 10 months, China has been paying Tariffs to the USA,” Trump tweeted on Sunday, saying he would raise tariffs again amid stalled negotiations on a trade deal with China.

But Trump’s tariffs are not paid by the Chinese government or companies located in China. They are paid by importers of Chinese goods – usually U.S. companies or the U.S.-registered units of foreign companies.

Every item imported into the United States legally has a customs code. Importers are expected to check the tariffs and other taxes and duties due on the goods they bring in, calculate what they owe, and pay it.

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U.S. Customs reviews payments and sends importers a fresh bill if it detects underpayment.

Importers also must post payment guarantees, or import bonds, with customs. The costs of these bonds have risen with tariffs, an additional burden on U.S.-based firms importing goods from China.


Explainer: Who pays Trump's tariffs, China or U.S. customers and companies?

Chinese suppliers do shoulder some of the cost of U.S. tariffs in indirect ways. Exporters sometimes, for instance, are forced to offer U.S. importers a discount to help defray the costs of higher U.S. duties. Chinese companies might also lose business if U.S. importers find another tariff-free source of the same goods outside China.

But U.S.-based importers are managing the higher tax burden in several ways that hurt U.S. companies and customers more than China.

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Such strategies include accepting a lower profit margin; cutting costs – including wages and jobs for U.S. workers; and passing on tariff costs through higher prices for U.S. consumers or companies.

Most importers use a mix of such tactics to spread the higher costs among suppliers, consumers or buyers.


Explainer: Who pays Trump's tariffs, China or U.S. customers and companies?

Higher duties on imports of metals and Chinese products, for example, increased Caterpillar’s production costs by more than $100 million last year. In response, the heavy-duty equipment maker increased prices for its products.

Tractor manufacturer Deere & Co estimates a $100 million increase in its raw materials costs this year because of Trump’s tariffs on Chinese imports. Deere has cut costs and increased prices to protect its profits.

Explainer: Who pays Trump's tariffs, China or U.S. customers and companies?

A Congressional Research Service report in February found that the tariffs led to increases in washing machine prices of as much as 12 percent, compared to January 2018, before tariffs took effect.

Steel and aluminum tariffs increased the price of steel products by nearly 9 percent last year, pushing up costs for steel users by $5.6 billion, according to a study by the Peterson Institute for International Economics.

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U.S. companies and consumers paid $3 billion a month in additional taxes because of tariffs on Chinese goods and on aluminum and steel from around the globe, according to a study by the Federal Reserve Bank of New York, Princeton University, and Columbia University. Companies shouldered an additional $1.4 billion in costs related to lost efficiency in 2018, the study found.


Explainer: Who pays Trump's tariffs, China or U.S. customers and companies?

China has retaliated against U.S. tariffs by imposing its own tariffs on imports from the United States.

Most importers in China are Chinese. So, in the same way the U.S. government collects import taxes on Chinese goods from U.S. importers, the Chinese government takes in taxes on U.S. goods from Chinese importers.

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As with tariffs in the United States, Chinese firms can seek to pass on the costs to U.S. exporters. Some U.S. interests have lost business, such as U.S. soy farmers. Chinese buyers have cut billions of dollars of soybeans purchases from the United States because Chin’s tariffs have made U.S. supplies more expensive than beans from competitors such as Brazil.

Mary Greeley News

credit: In part with https://www.reuters.com/article/us-usa-trade-china-tariffs-explainer/explainer-who-pays-trumps-tariffs-china-or-u-s-customers-and-companies-idUSKCN1SC1ZC