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When it comes to trade policy, President Donald Trump and his adviser Peter Navarro provide endless examples of incoherent economic thinking. They regularly claim that X is true, and then in the next breath, they assert that not-X is also correct. Let's consider two recent examples.
The first involves Navarro. Following an announcement that the administration was again ready to hit Chinese imports with a new round of tariffs, Navarro made the rounds on TV to argue that consumers should not worry because this will not affect them at all. Talking to Fox Business Network's Gerry Baker, Navarro said, "There's a lot of people who are saying, incorrectly, that somehow the American consumer is bearing the burden of these China tariffs. And it's just false." In other interviews, he went on to praise the billions of dollars raised by Uncle Sam from the tariffs.
These claims make no sense. The whole point of Trump's tariffs is to raise the prices of foreign goods to make them so unappealing to U.S. consumers that these consumers will instead buy more domestically made goods. Some of the Chinese producers of the goods could, in theory, eat the full cost of the tariffs and suffer reduced profit margins. However, in reality, importers pass a large portion of the costs of tariffs on to customers—manufacturers and households in the United States—by raising their prices. In fact, many academic studies have found that most or all of the burden of these tariffs is borne by U.S. consumers.
A 2019 study called "The Return to Protectionism" for the Quarterly Journal of Economics—written by four economists, including the chief economist of the World Bank Group—found that American consumers are the ones shouldering the nearly $69 billion in added costs imposed by the last year's tariffs on imports from China.
A Congressional Research Service report also found that tariffs imposed on global washing machine imports had jacked up prices by about 12 percent compared to January 2018, before the tariffs came into effect.
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