Trump is wrong about tariffs and who is paying for them

President Trump threw another curveball into ongoing trade talks with China on Sunday, threatening to raise tariffs to 25 percent on $200 billion worth of Chinese goods. Trump was apparently tweeting out of frustration over Chinese resistance to some of his bigger demands; he succeeded in rattling U.S. investors, at least.

In his tweets, Trump again showed he either doesn't understand how tariffs work or, more likely, doesn't seem to think the reality is as politically palatable as his claims that for 10 months, "China has been paying tariffs to the USA," that "these payments are partially responsible for our great economic results," and that "the tariffs paid to the USA have had little impact on product cost, mostly borne by China." He's wrong on most counts.

First, tariffs are taxes paid to U.S. Customs and Border Protection by U.S. importers — that is, U.S. companies or U.S. subsidiaries of foreign companies — not by China. So, for example, Costco would pay the tax on TVs imported for China, explains Howard Gleckman at the Tax Policy Center. "But who really pays the tax on imported goods? The answer, I am sorry to say is, it depends."

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Domestic companies typically deal with the extra tax through some combination of cost-cutting, eating the loss through lower profits, passing the cost on to consumers, asking the Chinese exporter to share the financial burden, or finding tariff-free countries to import from. Economists at the Federal Reserve Bank of New York, Princeton, and Columbia found in February that with Trump's tariffs, the entire burden has fallen "on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters."

That study conservatively estimated that the tariffs are costing U.S. consumers and companies $4.4 billion a month. A Congressional Research Report found that Trump's tariffs raised the price of washing machines by as much as 12 percent. And China's retaliatory tariffs have harmed U.S. farmers, especially; despite subsidies to offset those losses, Midwestern farms are declaring bankruptcy at rates not seen since the 2008 financial crisis.