America’s Treasury is earning billions from Donald Trump’s trade war

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ON NOVEMBER 29th President Donald Trump boasted on Twitter: “Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China. If companies don’t want to pay Tariffs, build in the U.S.A. Otherwise, lets just make our Country richer than ever before!”

Given Mr Trump’s penchant for falsehoods, sceptics could be forgiven for dismissing the president’s claim. In this case, however, his assertion does contain an element of truth. As of October 16th, Mr Trump’s tariffs on solar panels, washing machines, steel and aluminium from around the world, as well as a far wider range of goods from China, have generated direct government revenues of about $7.1bn, according to America’s Customs and Border Protection agency. In November alone, the Treasury department collected $7bn in total customs duties, more than twice the amount that was collected in the same month in 2017 (see chart).

Where economists would contradict Mr Trump is over his claim that his tariffs are “being charged to China”. In fact, the costs of these tariffs are borne largely by American firms and consumers. Importers that cannot rejig supply chains, or negotiate lower prices from suppliers, must absorb the costs of tariffs or pass them on to consumers in the form of higher prices. This is why more than 800 firms have filed for exemptions from the duties, and why companies like Caterpillar and Whirlpool have warned investors about hundreds of millions of dollars’ worth of tariff-related costs. Retaliatory tariffs from China have also taken a toll. The United States government has promised American farmers a $12bn bailout to compensate them for the economic damage caused by foreign tariffs on soyabeans and pork. That figure far exceeds the tariff revenue that has flowed into Treasury’s coffers so far.

Such costs are likely to grow. On January 1st American tariffs on $200bn worth of Chinese imports are set to rise from 10% to 25%. When asked on November 26th whether a deal could be struck to avoid the new round of levies, Mr Trump told the Wall Street Journal it was “highly unlikely”.

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