Daily Management Review

Cost To US Households $100bn A Year Due To China Tariffs, Estimates NY Fed


05/24/2019




Cost To US Households $100bn A Year Due To China Tariffs, Estimates NY Fed
The economic costs of the trade dispute with China for the United States was highlighted in a recent research report published by the New York Federal Reserve which claimed that American households would have to incur losses of about $106 billion a year because of the latest round of the increased US tariffs on Chinese imports worth $200 billion.
 
A typical American household would have to shell out about $800 more every year because of the most recent increase of import tariffs on Chinese goods worth $200 billion from 10 per cent to 25 per cent by the US president Donald Trump, estimated the report from the New York Federal Reserve which was led by Mary Amiti, the assistant vice-president at the New York Fed.
 
The report also issued a warning that there would likely be a reduction in US tariff revenues because of the higher tariffs on Chinese products, which would also be the cause of large economic distortions. The report has been co-authored by Princeton’s Stephen Redding and Columbia University’s David Weinstein.
 
The estimation of the hit to the American household made by the researchers was based on the methodology of projecting the amount of additional tax that would be generated because of the increase in tariffs as well as what is called the deadweight losses. According to theories of economics, losses to companies in the form of deadweight is generated when the companies have to face higher costs of importing products from a particular country – China in this case because the US has increased import taxes on Chinese goods, and therefore is forced to make procurement from another source country or producer which could be lower in terms of efficiency – for example, US companies choosing ot purchase from Vietnam instead of China because of the higher tariffs.
 
The report said that such losses to companies is generally higher in proportion to the increase in the import tariffs and the consequent higher costs because such importers are most often induced to make purchases from sources that are more expensive with the rise of tariffs.
 
The report further states that on the over all, it is estimated that the tax payments derived from the new round of tariffs would be about $26.9 billion a year, equivalent to $211 per household. On the other hand, the losses because of deadweight would come around $79.1 billion, or about $620 per household.
 
The potential economic outcomes in case of an escalation of the trade war between the US and China has been highlighted in the report from the New York Fed. Asset markets have responded negatively, with American and Chinese bourses both under pressure in recent days.
 
(Source:www.ft.com)






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