August 1, 2019 / 11:57 PM / 22 days ago

EXPLAINER-Trump's China tariffs: Paid by U.S. importers, not by China

    By Rajesh Kumar Singh
    CHICAGO, Aug 1 (Reuters) - With U.S. President Donald
Trump's announcement on Thursday of tariffs on another $300
billion of Chinese imports, nearly all goods from China will be
subject to import taxes, and Trump says they generate billions
of dollars in revenues for the U.S. Treasury from China. 
    But that is not how tariffs work. China's government and
companies in China do not pay U.S. tariffs directly. Tariffs are
a tax on imported products and are paid by U.S.-registered firms
to U.S. customs when goods enter the United States.
    Importers often pass the costs of tariffs on to customers -
manufacturers and consumers in the United States - by raising
their prices. U.S. business executives and economists say U.S.
consumers foot much of the tariff bill.
    That was why, immediately after Trump announced his
decision, U.S. retailers blasted the move as "another tax
increase on American businesses and consumers," which they
warned would threaten U.S. jobs and raise costs for American
families.
    The new levies will hit a wide swath of consumer goods from
cell phones and laptop computers to toys and footwear.
    Stephen Lamar, executive vice president of the American
Apparel & Footwear Association, said the new tariffs would hit
U.S. consumers far harder than Chinese manufacturers, who
produce 42% of apparel and 69% of footwear purchased in the
United States.             
    Investors are worried that the increase in retail prices
will hit consumer spending which has underpinned the U.S.
economy, and trade uncertainty makes businesses hold back
capital spending. 

    WHAT THE 'TARIFF MAN' SAYS
    Trump says the United States will be "taxing" China until a
trade deal is secured. He has called himself the "Tariff Man,"
often repeating that China pays for U.S. tariffs on its goods.
    On May 5, he tweeted: "For 10 months, China has been paying
Tariffs to the USA."
   
    HOW TARIFFS REALLY WORK
    U.S. Customs and Border Protection (CBP) collects the tax on
imports. The agency typically requires importers to pay duties
within 10 days of their shipments clearing customs.
    From early 2018 through May 1, Washington has assessed $23.7
billion in tariffs, according to data from the CBP.
    Total tariff revenue rose by 73% year-on-year in the first
half of 2019, to a total of $33.9 billion, according to U.S.
Treasury data.

    DO CHINESE SUPPLIERS BEAR THE COSTS OF U.S. TARIFFS?
    Chinese suppliers do shoulder some of the cost of U.S.
tariffs in indirect ways. Exporters sometimes, for instance, may
offer U.S. importers a discount to help defray the costs of
higher U.S. duties and maintain their contracts and market
share.
    Chinese companies are losing business as U.S. importers are
scouting for cheaper, tariff-free sources of the same goods
outside China.
    Trump and top members of his Cabinet have said that the
tariffs are accelerating a move of manufacturing out of China as
companies seek to relocate in countries that are not subject to
U.S. import tariffs.
    U.S.-based importers, meanwhile, are managing the higher tax
burden in a number of ways that hurt U.S. companies and
customers more than China.
    Such strategies include accepting lower profit margins;
cutting costs - including wages and jobs for U.S. workers;
deferring any potential wage hikes, in addition to 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 and consumers or buyers.
    
    HIGHER PRICES FOR COMPANIES AND CONSUMERS
    Higher duties on imports of Chinese and other products, for
example, increased Caterpillar Inc's         production costs by
$70 million in the last quarter. It expects to pay between $250
million and $350 million in tariffs this year. In response to
higher manufacturing costs, the heavy equipment maker has
increased prices.             
    Walmart Inc        , the world's largest retailer, and
department store chain Macy's Inc       have warned of an
increase in prices for shoppers due to higher tariffs on goods
from China.                          
    A Congressional Research Service report in February found
that tariffs imposed by Trump on global washing machine imports
had boosted prices by as much as 12%, compared with January
2018, before tariffs took effect.
    Global steel and aluminum import tariffs increased the price
of steel products by nearly 9% last year, pushing up costs for
steel users by $5.6 billion, according to a study by the
Peterson Institute for International Economics.
    U.S. companies and consumers paid $3 billion a month in
additional taxes because of tariffs on Chinese goods and on
global metals imports, 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.
    
    WHAT DO COMPANIES IN CHINA PAY?
    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. 



 (Reporting by Rajesh Kumar Singh; editing by Simon Webb and G
Crosse)
  
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