Two economic studies released this month conclude that the imposition of US tariffs on imports and foreign retaliatory tariffs on US exports has harmed the US economy.

One study estimates that the annual ongoing impact of these 2018 tariffs is a $7.8 billion loss for the US economy.¹

• This is the net loss after accounting for both the losses to US consumers and importers from higher import costs ($68.8 billion loss) and gains from higher tariff revenues ($39.4 billion gain) and the reallocation of production to US industries ($21.6 billion gain).
• If there had been no retaliatory foreign tariffs on US exports, the study concludes, this loss would have been reduced to a third of the actual negative impact.
• The analysis includes all of the tariff increases imposed by the Trump Administration (i.e., those on solar panels, washers, steel and aluminum, and Chinese products), as well as retaliation by other countries. Figure 1 summarizes the US tariff increases.

The other study concludes that losses from import protection totaled nearly $6.9 billion during the first 11 months of 2018. ² This is the net of a $12.3 billion gain from tariff revenue and $19.2 billion cost to US consumers and importers. The study also estimated that US and foreign retaliatory tariffs have significantly impacted global supply chains; by the end of 2018, the study estimates, $11.4 billion of US imports and $2.4 billion of US exports were being redirected each month to avoid the tariffs.

While the study's aggregate net effects are small relative to the size of the US economy, losses are proportionately larger for affected consumers and industries. These results imply that tariff revenue is paid by US consumers and importers in affected industries, while the benefit of the revenue (e.g., through government spending) accrues to US taxpayers generally, which makes US consumers and importers in affected industries worse off, since they are less than fully compensated for paying the tariff cost. In addition, the dollar losses for affected industries and consumers are proportionately much larger than if expressed relative to the size of the US economy.

Both studies find that US consumers and importers are bearing the full cost of the US tariffs. The cost is not being shifted onto foreign suppliers through lower prices. As a result, the studies conclude, the US tariffs are tax on US consumers and businesses. Similarly, the studies find that the retaliatory tariffs are borne largely by foreign consumers and importers, rather than by US exporters.

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ENDNOTES

¹ Fajgelbaum, Pablo D., Goldberg, Pinelopi K., Kennedy, Patrick J., and Khandelwal, Amit K. March 5, 2019. The Return to Protectionism. Working paper. University of California, Los Angeles. The impacts reported by the study are scaled to the 2016 US economy and not adjusted here.

² Amiti, Mary, Redding, Stephen J., and Weinstein, David E. . March 1, 2019. The Impact of the 2018 Trade War on U.S. Prices and Welfare. Discussion Paper Series. DP 13564. International Trade and Regional Economics. Centre for Economic Policy Research.