Question

U.S. Consumers Hit Hardest by Trade Tariffs, Studies Find

Importers passed most costs to American consumers, who shouldered an added $69 billion last year, researchers estimated Shipping cranes in Long Beach, Calif. Two new studies dispute President Trump’s oft-repeated claim that the cost of tariffs are mainly born by foreign countries.

By Josh Zumbrun

March 5, 2019 4:22 p.m. ET

WASHINGTON—The Trump administration’s trade initiatives have targeted China and other foreign powers, but it is U.S. consumers who have taken the hit, according to two new studies. American consumers have been saddled with $69 billion in added costs because of the tariffs the U.S. imposed last year, including on $250 billion on Chinese imports as well as levies on steel and aluminum, according to a study released by a quartet of economistsworking on a National Science Foundation grant. “U.S. consumers bear the incidence of the U.S. tariffs,” said the authors, who include economists from UCLA, the University of California at Berkeley and Columbia University as well as Penny Goldberg, the chief economist of the World Bank. The studies dispute President Trump’s oft-repeated claim that the cost of tariffs are born by foreign countries. But the administration has also justified the tariffs as a long-term strategy to bring trading partners to the table, as has happened in negotiations over the North American Free Trade Agreement as well as with South Korea and China. The U.S. had winners, too, the authors of the NSF-backed study said—starting with the federal government, which collected an estimated $39 billion from the new tariffs.

The White House didn’t respond to a request for comment.U.S. manufacturers and producers, such as steel mills and washing-machine makers, boosted income by $23 billion because tariffs on foreign competition let them charge more for their products. The Trump administration has justified some of its trade protection on the grounds that these industries could make more money, and ultimately create more jobs, if tariffs leveled the playing field with foreign competitors.

Adding up the costs and benefits, the overall hit to the U.S. economy was $6.4 billion, the study found—relatively scant damage in an economy of $21 trillion.

That assessment and one sponsored by the Centre for Economic Policy Research concluded that tariffs gave U.S. producers the ability to raise their prices when the tariffs were imposed on foreign competition. Those foreign companies raised their prices, too. Both studies share a key conclusion: Although tariffs are formally assessed on U.S. importers when they bring in goods from foreign countries, the costs are passed on to consumers. “We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices,” said the Centre for Economic Policy Research paper, written by economists from the Federal Reserve Bank of New York, Princeton University and Columbia. “The entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters.” They estimated that the tariffs, by the end of 2018, were responsible for reducing real U.S. national income by $1.4 billion a month. Neither study attempted to quantify damage to the economy from economic uncertainty and stock-market volatility stemming from the administration’s trade initiatives, which have been largely focused on correcting a growing trade imbalance with China. The Commerce Department has formally justified its tariffs on steel and aluminum as necessary for national security, and is studying tariffs on automobiles, auto parts, uranium and—it announced this week—titanium imports for national security reasons, too.The Commerce Department didn’t respond to a request for comment.

QUESTIONS:

	1. (Advanced) Who potentially benefits from a country placing tariffs on imported products? Who is potentially harmed? How do economists measure these costs and benefits?
	2. (Introductory) The article notes the burden of taxation (in this case tariffs). What is the burden of taxation?

If Someone can read the article and answer these questions

Answer 1

Key points from the case: USA is now at tariff war with many countries especially China. USA consumers have paid around $69 billion extra as they are the ones who are bearing tariff costs. USA govt. has got $39 billion as tariff revenue. US steel and other goods producers have made $23 billion extra. However, damage due to higher prices and volatile stock markets are not considered in this cost benefit analysis.

1.Hence it is clear that USA steel, white goods producers and govt are better off as their revenues have gone up,

Harmed are mainly USA customers, stock market investors and economy as a whole as a whole as USA products are also having higher tariffs now.US national income is also reducing.

There is straight forward calculation of costs and benefits. For example- a tariff of $1 is imposed and 1000 goods reimported then $1000 will me made by government, goods price may go up by more than a dollar as middlemen will take share, Consumers spending will go up and savings will drop which will impact investments. Benefits can be calculated by new jobs generated and average salaries paid. Also the income rise of companies and government.

2. Burden of taxation: Let us say a good was $1 without tariff, now with 10 % tariff it becomes $1.1 and customer pays more if the demand is inelastic, it means that in this case customer did not have a choice. If demand is elastic and customer has a choice then sellers will bear this burden.

Hence depending on choice the customers or sellers bear the burden. In this article it is clearly mentioned that customers are bearing th burden. It shows that consumers do not have a choice or USA made goods are still expensive or of low quality.