US importers have borne almost the complete burden of tariffs placed on Chinese goods amid the long-running tit-for-tat trade war between the two global powers, according to a report from the economy, politics and society (EPoS) research centre at the universities of Bonn and Mannheim.
The research paper, titled Who Pays for the Tariffs and Why? A Tale of Two Countries, finds US importers shouldered 93% of price increases caused by US tariffs, totalling US$1.21bn per month in 2018 and US$2.47bn per month in 2019. This is in stark contrast to Chinese importers, who only paid 68% of the retaliatory tariffs imposed by China – with US exporters paying the remaining 32%.
“We analysed how the tariff burdens were shared between importers and exporters and got some surprising results,” says Lei Li, assistant professor of applied microeconomics at the University of Mannheim. “Such a near-complete ‘pass-through’ is uncommon and astonishing given the power of the United States to influence terms of trade.”
This tariff pass-through effectively means that, rather than Chinese exporters reducing prices on the goods they sold to the US that were affected by US retaliatory tariffs, US importers accepted lower profit margins on Chinese goods, thereby absorbing a significant share of the price increases themselves.
After examining 17,000 products, EPoS attributes this significant disparity to the differing import structures, trade policies, and the specific ‘pass-through’ of products in both nations.
“China chose a short-term strategy setting tariffs in sectors where it has market power as a large importer,” says Li. “The US seems to have been less concerned about reducing the trade deficit and more about future competition in high-tech sectors in the longer run.”
The US government’s focus on competition in high-tech sectors contrasted with China’s strategy of putting an end to the trade war. As a result, China imported more products with lower tariff pass-through, such as agricultural goods, whereas the US imported more goods with higher pass-through, like electronics.
These findings present a new understanding of the trade war that started in 2018 when former US president Donald Trump set his sights on forcing the Asian giant to make changes to what he said were longstanding unfair trade practices and intellectual property theft.
An uneasy peace was brokered between the two sides in 2020, with the signing of a ‘phase one’ trade deal – heralded by Trump as “the biggest deal anybody has ever seen”. However, research published last year by the Peterson Institute for International Economics (PIIE), a US think tank, found the pact failed to achieve any of its stated objectives, calling it “problematic, if not unrealistic” from the start.
Unveiling its trade strategy in 2021, the Joe Biden administration demonstrated little departure from the Trump era, choosing instead to maintain tariffs targeting billions of dollars of Chinese imports. In light of rising prices, the Biden administration has stated it may consider walking back some tariffs to ease inflationary pressures – although there’s nothing to suggest any changes will occur any time soon.