Minnesota’s Economic News — W/E 7/1/22
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A recent NBER working paper has shown that American consumers continue to bear the costs of tariffs placed on Chinese goods. Contrary to the expectation of lower foreign prices, recent US tariffs have been passed on to importers and consumers almost entirely.
This should not be too surprising. Econ 101 teaches that costs imposed on producers are usually passed on to consumers in some way. Moreover, previous studies have also shown that this is true of tariffs. Using 2019 data, researchers (Mary Amiti, Stephen Redding, and David Weinstein) cement this idea.
In this paper, we…find that adding data for most of 2019 does not alter the main conclusions of earlier studies. U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers.
The impact of tarrifs is mostly having sizable impacts on U.S import volumes. Specifically, imports have continued to fall and in higher magnitudes compared to when the tariffs were first introduced. This is likely due to a delayed impact. Some firms take time to reorganize their supply chains so as to avoid imposed tariffs.
For the steel industry, the effects are a little different. Tariffs have caused a reduction in foreign steel prices. However, foreign countries are bearing only close to half the cost of these tariffs. Additionally, these have mostly fallen on the European Union, Japan, and South Korea, since China is only the 10th largest supplier of steel to the US.
Unfortunately for Americans, Econ 101 is right. Tariffs are never a good idea. They only raise prices and restrict trade.