When the Trump administration imposed tariffs on Chinese imports last year, officials insisted that China would pay the cost – implying that Chinese firms would have to cut their prices to absorb import “taxes” of up to 25 per cent when the goods hit US shores.
Instead, the prices Chinese firms charge have barely budged, meaning US companies and consumers are paying the tariff costs, estimated at around US$40 billion annually, New York Fed Reserve Bank researchers found in a study released on Monday.
As a result of the US-China trade war, US Customs and Border Protection adds as much as 25 per cent to the import price as Chinese goods enter the country. If Chinese companies were absorbing that cost, they would have to cut their prices as much as 20 per cent – a level that would allow US retailers, manufacturers, or wholesalers to keep their own prices and profits stable.
That is not what is happening.
Import data from June 2018 to September 2019 shows Chinese import prices fell only 2 per cent, the Fed study found, in line with price declines seen in many other nations as global trade slowed.
“The continued stability of import prices for goods from China means US firms and consumers have to pay the tariff,” the Fed research team wrote.