Politics

Trump's claims of '$100 billion' in Chinese tariff payments just don't add up

Key Points
  • President Donald Trump on Friday claimed a victory of sorts in an ongoing trade war with China, asserting that his latest round of import tariffs on Chinese goods will force China to pay "$100 billion" to the U.S. Treasury.
  • In fact, the burden of higher tariffs will fall on buyers of Chinese made products and, ultimately, American consumers.
  • That could end up costing every American household about $800, according to estimates from Oxford Economics.
President Donald Trump meets business leaders at the Great Hall of the People in Beijing, China, in November, 2017.
Jonathan Ernst | Reuters

President Donald Trump on Friday claimed a victory of sorts in an ongoing trade war with China, asserting that his latest round of import tariffs on Chinese goods will force China to pay "$100 billion" to the U.S. Treasury.

Not only is Trump overstating the amount of those payments, he's apparently unaware of who pays customs duties.

In fact, the burden of higher tariffs will fall on buyers of Chinese-made products and, ultimately, American consumers. That could end up costing every American household about $800, according to estimates from Oxford Economics.

U.S. and Chinese negotiators resumed trade talks Friday under increasing pressure after Trump raised tariffs on $200 billion in Chinese goods and Beijing promised to retaliate, escalating a trade battle that began last summer.

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Trump maintains the U.S. stands to gain from the latest escalation because of the added customs duties that will now flow to the U.S. Treasury.

Tariffs are taxes imposed by the government while duties are what importers have to pay. The two are not equal.

While it's true that duties collected by the Customs Department go "directly to the U.S. Treasury," they are hardly "massive" in terms of the government's overall receipts.

According to Treasury Department data, overall tariff revenue collected in the latest fiscal year — on imports from China and the rest of the world — is just a drop in the fiscal bucket.

In the latest fiscal year, for example, just $41 billion — or about 1% — of the nearly $3.3 trillion in revenues raised by the federal government came from customs duties.

Trump insists the new tariff revenues will amount to $100 billion, more than double the current annual level of customs duties.

Customs duties did increase substantially beginning last July, when the Trump administration's tariffs on China began to take hold. Since then, those revenues have been about $2.2 billion a month higher than the prior year.

Trump has claimed that the U.S. will benefit from higher tariffs on Chinese goods because China will now have to pay higher duties to the U.S. Treasury.

To be sure, a protracted period of higher tariffs on the wider list of Chinese goods would substantially boost the amount of customs duties paid to the Treasury. But that burden would be born by the importers, wholesalers and retailers who sell those goods and, ultimately, by U.S. consumers who buy them.

It's difficult to estimate exactly how that burden would be shared. Some companies in the supply chain may choose to absorb some of the higher cost of importing Chinese goods to avoid passing along price increases that could hurt their market share.

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But Trump's higher tariffs on Chinese goods would dampen U.S. economic growth no matter who foots the bill.

Economist Greg Daco at Oxford Economics estimates that the tariffs in place since last year depressed U.S. gross domestic product by about 0.1 percentage point this year. Trump on Friday boosted tariffs on $200 billion of imports from China from 10% to 25%, and if China retaliates, Daco estimates that will cut U.S. GDP by 0.3 percentage point next year, costing the U.S. economy about $62 billion. That comes to about $490 per U.S. household.

The higher tariffs would push U.S. GDP below 2% and dampen employment growth by about 200,000 jobs, according to Daco's estimates.

Trump issued a statement Friday afternoon saying the tariffs his administration imposed earlier that day "may or may not be removed" while trade talks continue.

If the administration follows through on a threat to impose 25% tariffs on all remaining imports from China, and China retaliates, Daco estimates that the U.S. economy would lose about a half percent of GDP growth. That would cost each household close to $800, and lead to 360,000 fewer jobs being created, according to his estimates.