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President Donald Trump told an Ohio audience Thursday that China is footing the bill for the massive tariffs he's slapped on foreign goods coming into the United States.
“Don’t let them tell you, the fact is — China devalues their currency, they pour money into their system. Because of that, you’re not paying for those tariffs. China’s paying for those tariffs,” the president said, hours after announcing the new set of tariffs on Chinese goods. “Until such time as there is a deal, we will be taxing the hell out of China.”
But economists say that's not how tariffs work, and that Americans are the ones footing the bill so far.
Trump has long championed his methods — last year he dubbed himself "Tariff Man" — as righting wrongs inflicted on the U.S. by other countries. But most economists agree a trade war hurts the economy and consumers alike.
Tariffs are taxes on goods coming in to the U.S., paid by the importer. The exporter — in this scenario, China — doesn't pay a thing.
"All of the U.S. tariffs have been passed to U.S. importers, U.S. retailers, U.S. consumers,” said Stephen Redding, a Princeton University economist and author of a recent study analyzing the effects of Trump’s trade war in 2018. “Somebody in the U.S. is paying higher prices.”
Trump's suggestion Thursday that China’s currency devaluations are paying for tariffs doesn't hold water either, Redding said.
"Although there has been a small devaluation of the Chinese currency, that’s just too small to make any difference," he said.
Tariffs are designed to make foreign-made goods more expensive, boosting domestic producers or, sometimes, forcing international exporters to slash prices to stay competitive. But there's no evidence China is cutting prices to accommodate Trump’s tariffs.
Instead, Americans are footing the bill, Redding and his colleagues concluded after analyzing 2018 customs data. Americans are paying an additional $832 each year per household, the researchers found.
A second study with a different methodological approach that was published in the National Bureau of Economic Research in March found that 100 percent of the cost of the 2018 tariffs were passed on to U.S. consumers.
This wasn't exactly what researchers expected, Redding added.
“In traditional economics, the tariff would be shared by consumers in the U.S. and Chinese exporters,” he said. “But when we went into the data, so far the entire tariffs have been passed through” to Americans.