One of the problems with evaluating claims made by President Trump’s administration about the tariffs imposed on products from China is that it can be hard to determine how much misdirection is built in.
Consider the crux of the issue: who is paying for the tariffs. It is certainly the case that very, very few American consumers are paying for the tariffs directly; Americans aren’t sending checks to the Treasury to cover increased import costs. Instead, they’re paying for the tariffs indirectly, through higher prices of products that are imported from China or that use components imported from China. A bad-faith representation of the situation could say, with accuracy, that consumers are paying very little, if any, of the tariffs simply based on that distinction.
A broader problem, though, is that the president’s rhetoric on the issue is all over the map and internally inconsistent — and also not the argument his team is making publicly.
On Sunday, two members of Trump’s team, and the president, offered thoughts on the effects of the tariffs. On CNN’s “State of the Union,” the director of the White House’s office of trade policy, Peter Navarro, argued that people were focusing on the wrong economic pain.
“China's bearing the entire burden of the tariffs,” Navarro told host Jake Tapper, adding that “what we see here, unequivocally, is that China is bearing the burden by lowering their prices.” China subsequently devalued its currency, Navarro said, an indication of the extent to which it was absorbing the brunt of the tariffs.
Tapper cited research conducted in May indicating that American importers were paying 95 percent of the costs of the tariffs.
“That dog won't hunt,” Navarro replied, repeating his argument about China's currency devaluation.
“We have seen absolutely no evidence in the price data that consumer — that's not showing up in the consumer price index,” Navarro said. “China is slashing their prices.”
In other words, Navarro's rejoinder is that since the overall consumer price index doesn't reflect an increase in prices, consumers aren't paying increased costs.
A May report from the New York Federal Reserve Bank estimates that the tariffs in place at that point would cost consumers an additional $831 a year per household. Analysis by researchers including Columbia University’s David Weinstein and provided to The Washington Post found that the $15.6 billion in tariff revenue collected in 2018 was paid entirely by American businesses and consumers.
On Fox, White House economic adviser Larry Kudlow was talking tariffs with guest host Dana Perino. On the surface, his take was different.
“Our goal here is very simple: We want to minimize any impact on the American consumers. So far, it’s been virtually zero,” Kudlow said. “I just saw a forecast, professor Niall Ferguson of Harvard and now Hoover Institute. He was on, and he said, ‘You know, China is paying for these tariffs by a ratio of about four to one.’ "
Most obviously, this is a different story from the one Navarro presents. Kudlow has Americans absorbing 20 percent of the tariff costs, as opposed to bearing none of it.
But that’s also not what Ferguson, a historian, said. Kudlow was referring not to research but to something Ferguson said on another Fox News show earlier in the month. Speaking to host Mark Levin, Ferguson said that “the cost to China — the impact on China’s economy — is roughly four times greater than the impact on the U.S. economy.”
That’s a different metric and one more in line with what Navarro was arguing. Ferguson then went on to say that “some of the cost is being absorbed by Chinese companies as they try to offset the impact of the tariffs. But I think the most important cost has been borne by the Chinese economy as a whole.” In other words: Don’t focus on who’s paying for the tariffs; focus on where the bigger economic damage is being done.
Trump, of course, has tried to argue that there is no economic damage being done to American consumers.
“All you have to do is say, ‘China, how you doing?’ They’re not too happy, they’re not too happy,” Trump said at a rally in New Hampshire last week. “They’re losing millions of jobs. The tariffs are working, and they’re eating the tariffs by the way. There’s no price increase.”
That was on Thursday. On Friday, the New York Federal Reserve released a report on the results of a survey of manufacturers in the state.
“For both [2019 and 2020], roughly two-thirds of manufacturers saw an upward effect on prices paid, and roughly 45 percent saw an upward effect on selling prices,” it read. In other words: American manufacturers see their costs going up, thanks to tariffs — and many expect the cost of their products to do the same.
Trump himself has admitted that this obvious dynamic is happening. This month, he announced a delay on some tariffs to prevent cost increases for the Christmas shopping season, an acknowledgment that consumers bear some of the costs of the tariffs. Speaking to reporters Sunday while returning to the White House from his private golf club in New Jersey, Trump said that he had discussed the tariffs over dinner with Apple chief executive Tim Cook.
Cook told him that Apple faced a competitive disadvantage against rival Samsung because Apple's products and components are much more centralized in China than Samsung's. That means it takes more of a hit from China-specific tariffs.
“It’s tough for Apple to pay tariffs if it’s competing with a very good company that’s not,” Trump told reporters, calling Cook’s (fairly obvious) argument “very compelling.”
One of the central points of Trump’s tariffs was that manufacturers such as Apple would bring manufacturing back to the United States instead of producing goods overseas if given the incentive. Presented with Apple’s counterargument, Trump nods.
But again: Look what’s happening here. An American company is saying not that China is bearing the entire brunt of the tariffs but, instead, that it is. That its costs will go up, making it less competitive, because it would need to charge consumers more. Apple was one of the beneficiaries of the Christmas-season tariff delays, but the problem lingers.
Presented with that reality, Trump is persuaded. Seems as if Navarro and Kudlow need to better explain to their boss how the real issue is the economic impact on China.