Photo: AFP
Photo: AFP

New studies have added to the evidence that the US-China trade war is inflicting pain on US consumers and businesses, even while President Donald Trump insists that the US is well positioned to weather the storm should he back away from a trade deal.

Last week, the American Chamber of Commerce in South China released a survey showing that, unsurprisingly, the majority of US respondents with operations in China were losing market share to competitors from other countries. The survey also supported data showing that business investment has slowed significantly due to the uncertainty surrounding the trade policy.

But the trade war is also hitting business operations at home in the US, as well as the American consumer.

A paper published on Saturday by economists from the Federal Reserve Bank of New York, Princeton University and Columbia University found that tariff revenue collected by the US is “insufficient to compensate the losses being born by the consumers of imports.”

The authors wrote:

“We estimate the likely impact on US consumers and find that by the end of 2018, import tariffs were costing US consumers and the firms that import foreign goods an additional $3 billion per month in added tax costs and another $1.4 billion dollars per month in deadweight welfare (efficiency) losses.”

The economists estimated that, should the tariffs in place continue, around US$165 billion of annual trade would be redirected as a result of the most dramatic protectionist policy push undertaken in the US since the 1930s.

In a separate report released recently, economists from the University of California at Los Angeles, Yale, UC Berkeley, Columbia and the World Bank estimated, “Annual losses from higher costs of imports are $68.8 billion (0.37% of GDP). After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare loss is $7.8 billion (0.03% of GDP).”

The insight into the net costs incurred by the tariffs conflicts with Trump’s claim that “billions of dollars are pouring into the coffers of the USA because of the tariffs being charged to China.”

The research also sheds light on one reason Trump might be eager to strike a trade deal with China, even if it simply ratchets down the current trade tensions, while saving more difficult negotiations on Chinese industrial policy for later.

The Trump administration has played up the likelihood of a deal, hinting that a resolution that might provide tariff relief could come within weeks.

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