US President Joe Bidens decision last week to raise tariffs on roughly $18 billion of goods from China has revived a long-running debate in economics over who ultimately pays such tariffs, the Wall Street Journal stated.
In a report, the US newspaper said that the tariffs former US President Donald "Trump imposed and Biden has maintained on imports from China were largely passed on to American buyers, rather than forcing Chinese sellers to charge less."
It added that this isnt entirely surprising; by raising prices on electric-vehicle batteries from China, for example, Bidens levies are meant to push buyers to find alternative suppliers.
Economics professor at the University of California Katheryn Russ said, "its a tax. Somebody has to pay it. Its a question of who...Its been really hard for economists to say definitively how much of the cost of the tariffs is going to translate into higher end-retail prices."
In 2022, Russ estimated that repealing Trump-era tariffs on roughly $300 billion in Chinese goods could reduce inflation, the newspaper said, noting that the estimate assumed that the US companies that are importing from China pass on all of those higher prices to the final consumers.
The Wall Street Journal, however, pointed to a 2019 paper from a group of economists that found that only a small increase in prices on goods subject to tariffs, suggesting that retailers absorbed much of the cost. Absorption by retailers and wholesalers would mean that the tariffs function as a tax on businesses.
The vice president for international trade at the Retail Industry Leaders Association Blake Harden said, "the way that costs are factored in from something like a tariff hike is going to be different depending on the company, their margins, the products, how diversified they are."
On Trumps plan to impose 10% across-the-board tariff if he wins elections in November, Biden argued that Trumps 10% universal tariff would significantly raise prices for American families. "That would drive up costs for families on an average of $1,500 a year each year. He simply doesnt get it," Biden said at the White House.
Senior fellow at the Center for American Progress Action Fund and a former Biden aide Brendan Duke was the one drew up the $1,500 estimate. He said the figure assumes that the full cost of the tariff would be passed on to consumers, although he acknowledged the ambiguity of the evidence on how tariffs ultimately filter into the economy.
He added that," in the last few years weve seen companies have had no problem passing increased costs on to consumers...So it seems reasonable that they would do the same thing with tariffs."
The newspaper explained that Trumps proposed across-the-board levy could be costly because businesses and consumers couldnt easily find substitutes. Domestic suppliers might raise their prices with less competition from abroad. And foreign nations could retaliate against US exports.
Analysts at Goldman Sachs estimated in a recent research note that every percentage point increase in the overall US tariff rate would increase core consumer prices by roughly 0.1%. The one-time increase would drop out of annual inflation statistics after a year.
Even if businesses end up absorbing some or most of the tariff, economists still see that imposing a cost. Firms faced with higher prices might have to lay off workers or hold off on expansions. That could sap overall growth and ultimately still affect consumers, though some more than others.
