China is paying for most of Donald Trump’s trade war1 min read . Updated: 20 Nov 2018, 03:08 AM IST
US companies and consumers will only pay 4.5% more after the nation imposed 25% tariffs on $250 billion of Chinese goods, shows a new research
Frankfurt: US President Donald Trump is succeeding in making China pay most of the cost of his trade war.
That’s the conclusion of a new paper from EconPol Europe, a network of researchers in the European Union. US companies and consumers will only pay 4.5% more after the nation imposed 25% tariffs on $250 billion of Chinese goods, and the other 20.5% toll will fall on Chinese producers, according to authors Benedikt Zoller-Rydzek and Gabriel Felbermayr.
The trade dispute between the US and China is showing slim hope of abating as the leaders of the two nations prepare to meet in Argentina this month. According to Zoller-Rydzek and Felbermayr, the tariffs will do what Trump has longed for: they will cut American imports of affected Chinese goods by more than a third, and lower the bilateral trade deficit by 17%.
The Trump administration selected products with the highest “price elasticity", or high availability of substitutes, according to Zoller-Rydzek and Felbermayr. The Chinese products hit by Trump’s tariffs can mostly be replaced by other goods, forcing exporters to cut selling prices to keep buyers.
“Through its strategic choice of Chinese products, the US government was not only able to minimize the negative effects on US consumers and firms, but also to create substantial net welfare gains in the US," the researchers wrote.
The US is due to raise duties on the largest $200 billion tranche of goods to 25% from 10% on 1 January. In retaliation, China has slapped tariffs on $110 billion in imports from the US and effectively shut off its purchase of key American agricultural exports including soybeans.
With the economic costs shifted to China, the US levies will lead to a $18.4 billion net gain for the American government, the researchers wrote.
“As the trade conflict escalates, however, the US administration may not be able to restrict its selection to products with high import elasticities," they wrote. “And US welfare might decrease as more of the tariff incidence falls on US consumers."