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Why you may end up paying for the tariffs Trump wants to impose on China


Update: Trump to hit Canada, Mexico and China with tariffs beginning Saturday, White House says

While campaigning for president, Donald Trump said he would impose a 60% tariff on products from China, America’s leading foreign supplier, and other tariffs as high as 20% on all U.S. imports, actions that retailers say will hurt U.S. consumers.

President-elect Trump has said the tariffs – taxes on imported goods that make them more expensive to import and later, to sell – will help stop what he's called unfair trade practices by China. They will also increase manufacturing employment in the U.S., Trump says.

Trump has said foreign countries would pay the tariffs. However, retailers and economists say it’s American shoppers who will end up paying more.

A National Retail Federation report cited a Budget Lab estimate of $1,900 to $7,600 in additional costs per U.S. household annually if Trump's tariffs are imposed. The NRF report said consumers "could lose between $46 billion and $78 billion in spending power each year."

A middle-income family could pay an estimated $1,700 more a year, according to the Peterson Institute for International Economics.

How does a tariff work?

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A tariff is a tax or levy imposed by the U.S. on foreign-made products imported into the country.

The additional fee is paid by the business importing the item into the country, usually a company based in the U.S.

The money raised by a tariff is called a duty or customs duty. In the U.S., the duty is collected by U.S. Customs and Border Protection and goes to the U.S. Treasury.

Tariffs target trade deficits

A tariff is used to reduce a trade deficit, the monetary gap that opens when a nation imports more than it exports.

Tariffs create revenue for governments. However, the goal of a tariff is to change the flow of products across international borders and make foreign manufacturers’ products more expensive for U.S. shoppers and businesses, Paste BN reported. 

The intent is to help American companies, which often are undercut in price by foreign rivals, make competing products.

Trump says tariffs will benefit the U.S. by:

  • Encouraging other countries to negotiate better trade deals.
  • Preventing other nations from "dumping" their products in the U.S. at below-market prices.
  • Motivating nations to lower their tariffs on shipments into their countries from the U.S. 

Who pays tariffs? Usually consumers, not foreign nations

The extra costs brought on by tariffs "are largely passed on to consumers," according to economists in a report by the Council on Foreign Relations. 

Of those paying the price, lower-income Americans are hit hardest, according to a Peterson Institute for International Economics analysis in 2014.

Who ultimately pays for tariffs depends on a number of factors, the Cato Institute says. However, “recent empirical evidence indicates the new U.S. tariffs imposed in 2018 and 2019 were almost entirely passed on to U.S. consumers, resulting in higher prices and reduced export growth,” the think tank reported in April.

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Trump has said many other countries levy far higher tariffs on imports than the U.S., Paste BN reported.

Trump also has criticized trade deals such as NAFTA and other countries' tariffs that have led to more foreign imports into the U.S. than exports from the U.S. to other countries. His administration replaced NAFTA with the United States-Mexico-Canada Agreement in 2020.

This story was updated to add new information.

CONTRIBUTING Jim Sergent and Paul Davidson

SOURCE Paste BN Network reporting and research; Reuters; U.S. International Trade Administration; Council on Foreign Relations; National Retail Federation; Cato Institute; Georgia State University