May 10, 2019 1:32 pm
Updated: May 11, 2019 9:00 am

Trump claims China will pay for tariffs — but the burden falls on U.S. businesses, consumers

WATCH ABOVE: U.S., China wrap-up 'constructive' trade talks on Friday

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WASHINGTON —  U.S. President Donald Trump let loose with a morning round of tweets that sugar-coat the consequences of his trade war with China.

Trump minimized the worth of China’s purchases of U.S. goods and services, which support nearly 1 million jobs in the U.S., misstated the trade deficit and ignored the inevitable rise in many costs to consumers when imports are heavily taxed.

READ MORE: Trade talks between U.S., China break down after Trump boosts tariffs

This, as his tariffs kicked in Friday on $200 billion worth of Chinese goods, with another round of tariffs in the offing, and as U.S. and Chinese officials negotiated in Washington. With trade relations between the economic giants seemingly rupturing and the stock market sinking, Trump called the talks “congenial.”

A look at some of his statements:

TRUMP: “Your all time favourite President got tired of waiting for China to help out and start buying from our FARMERS, the greatest anywhere in the World!”

THE FACTS: The notion that China doesn’t buy from U.S. farmers is false. China is the fourth largest export market for U.S. agriculture. It bought $9.3 billion in U.S. agricultural products last year.

WATCH: Vice Premier Liu He said China and the United States have agreed to hold more trade talks in Beijing, but said there were “issues of principle.”

As for calling himself “your” favourite president, he is addressing only his supporters, not the country. Polls find Trump’s approval rating to be high among Republicans but it generally ranges between about 35 per cent and 45 per cent among Americans overall.

TRUMP: “We have lost 500 Billion Dollars a year, for many years, on Crazy Trade with China. NO MORE!”

THE FACTS: That’s wrong. When sizing up the trade deficit, Trump always ignores trade in services — where the U.S. runs a surplus with China — and speaks only of goods. Even in that context, he misstated the imbalance.

The U.S. trade deficit with China last year was $378.6 billion, not $500 billion.

On goods alone, the deficit was $419.2 billion.

WATCH: Trump follows through on bringing tariffs against China which threatens to strike back

READ MORE: Trade talks between U.S., China break down after Trump boosts tariffs

Trump is also misleading when he puts the deficit in that ballpark for many years. It’s true the imbalance has long been lopsided. But the U.S. Trade Representative’s Office notes that exports of goods to China have increased by nearly 73 per cent since 2008 and U.S. exports to China overall are up 527 per cent since 2001.

Nor is the trade gap a “loss” in a pure sense. U.S. consumers and businesses get electronics, furniture, clothing and other goods in return for their money. They are buying things, not losing cash.

WATCH: Trump pledges to put tariffs on China as trade troubles continue


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TRUMP: “Tariffs are NOW being paid to the United States by China of 25 per cent on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.”

THE FACTS: This is not how tariffs work. China is not writing a check to the U.S. Treasury. The tariffs are paid by American companies, which usually pass the cost on to consumers through higher prices. One of the theories is that the higher prices will encourage consumers to buy goods made in the U.S. or elsewhere instead. But the risk is that consumers could simply respond by spending less than they otherwise would, which would hurt growth.

The burden of Trump’s tariffs on imports from China and other countries falls entirely on U.S. consumers and businesses that buy imports, said a study in March by economists from the Federal Reserve Bank of New York, Columbia University and Princeton University. By the end of last year, the study found, the public and U.S. companies were paying $3 billion a month in higher taxes and absorbing $1.4 billion a month in lost efficiency.

WATCH: Sen. Elizabeth Warren slams Trump’s ‘tariff negotiation by tweet’ in China trade talks

A coalition of U.S. trade organizations representing retail businesses, tech, manufacturing and agriculture said this week: “For 10 months, Americans have been paying the full cost of the trade war, not China.” It said: “To be clear, tariffs are taxes that Americans pay, and this sudden increase with little notice will only punish U.S farmers, businesses and consumers.”

TRUMP: “Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped. Waivers on some products will be granted, or go to new source!”

WATCH: Tensions high as China, U.S. begin trade talks

THE FACTS: In addition to repeating the canard that China pays the tariffs, he’s failing to account for the damage that tariffs can do.

By most private estimates, a trade war leads to slower growth rather than the prosperity that Trump is promising. The president’s tweet also goes beyond past claims that tariffs are simply a negotiating tactic to force better terms with China. Trump appears to be suggesting that a tariff increase would generate revenues that could then be spent on farm products and infrastructure, something that might in theory require support from Congress.

READ MORE: U.S. to raise tariffs on China to 25% on $200B worth of imports

WATCH: China to fight back after Trump slaps tariffs on Chinese goods

But on their own, tariffs are a clear drag on growth.

Analysts at the consultancy Oxford Economics estimate that implementing and maintaining the latest increase would trim U.S. gross domestic product by 0.3%, or $62 billion, in 2020. This would be equal to a loss of about $490 per household.

Economists at Nomura note that gross domestic product this year could take a hit of as much as 0.4 per cent if Trump expands the taxes to all Chinese imports, as business confidence slumped and financial conditions tightened.

Associated Press polling writer Hannah Fingerhut contributed to this report.

© 2019 The Canadian Press

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