1. Tariffs on Chinese Imports: What is the Economic Impact?

2. Tariffs on Chinese Imports: What is the Economic Impact?
Background: President Trump imposed 10% tariffs on more than $200 billion of Chinese imports. The tariffs will increase to 25% in January.
Definition: A tariff is a tax on imports or exports. Money collected under a tariff is called a duty or customs duty. Tariffs are used by governments to generate revenue and to protect domestic industries from competition.

3. Tariffs on Chinese Imports: What is the Economic Impact?
Domestic Prices increase
Quantity demanded from China decreases
Quantity demanded from third countries increases (trade diversion)
Overall Quantity demanded domestically decreases
Quantity supplied from third countries increases
Quantity supplied domestically increases

4. The Impact of Tariffs Textiles and apparel $27,000 640,000 $ 42,000
Industry Total Costs to Number of Cost per
Consumers Jobs Saved Job Saved
(in $ millions)
Textiles and apparel $27, ,000 $ 42,000
Carbon Steel 6,800 9,000 $ 750,000
Autos 5,800 55,000 $ 105,000
Dairy products 5,500 25,000 $ 220,000
Shipping 3,000 11,000 $ 270,000
Meat 1,800 11,000 $ 160,000
SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.

5. Tariffs on Chinese Imports: What is the Economic Impact?
Trade Diversion: Production shifts from the most efficient producer to second most efficient producer due to government intervention (selective tariff on Chinese goods). If second most efficient producer is not U.S., a third country producer benefits. All the cost is still borne by the U.S. consumer.

6. Tariffs on Chinese Imports: What is the Economic Impact?
Trade Diversion (example): Cost of Supply (Production cost + Tariff) and resulting trade for specific product
Policy
U.S.
China
Count. A
Count B
Resulting Trade
Free Trade 36 30 32 35
U.S. imports from China
10% Tariff 33
U.S. imports from A
25% Tariff
37.5
In this example, the U.S. producer does not benefit and the U.S. consumer bears all the cost.

7. Tariffs on Chinese Imports: What is the Economic Impact?
Winners and Losers of the Tariffs:
Winners
Third country producers
U.S. Producers
Chinese consumers
Losers
Consumer in U.S.
Producer in China
Total Losses by Far Exceed Total Gains

8. Tariffs on Chinese Imports: What is the Economic Impact?
Dynamic effects of Chinese Tariffs:
Chinese competitors adjust, become more competitive in long run
Retaliation
Trade Deficit with China decreases but might increase with third countries
Increased uncertainty, potentially less investment and hiring, feeding back to less consumption
Increased inflation in U.S.

9. Tariffs on Chinese Imports: What is the Economic Impact?
The Good:
The Tariffs might pressure China to open its economy and play more by the rules of multilateral trade agreements.
The Bad:
The majority of the cost is borne by the U.S. consumers
The Ugly:
China might not botch anytime soon and the trade dispute deepens in severity