By John Ross Source: CGTN Published: 2018-8-30
The US tariffs against China pose every American family with a stark choice: Do they want to pay 850 US dollars a year to the US tax authorities, to carry out a tax war against China, or do they want to spend that 850 US dollars on their own household? This will significantly affect their living standard.
The reason the choice is that simple was analyzed by the respected Western economics company Oxford Economics – which has no connection with China. In the most comprehensive study of US-China trade, it found: "Chinese manufacturing… lowered prices in the United States for consumer goods, dampening inflation and putting more money in American wallets…. The typical US household… saved up to $850."
Blocking off Chinese imports through tariffs will, therefore, raise prices for the average US household by 850 US dollars.
The price rising effect of tariffs in raising prices in the US can already be seen.
A tariff on washing machines was followed by a 20 percent increase in prices.
Steel prices were already rising in the US before tariffs on steel and aluminum but they inevitably worsened this. By July 2018 US prices on hot-rolled band steel, used in numerous US products, were 52 percent above their level in October 2017.
Aluminum prices have increased by 11 percent. As a result, Coca-Cola announced it was taking the unusual step of raising prices midyear in North America because of rising costs, including prices for aluminum. Hundreds of other manufacturers will have to follow.
Caterpillar, the biggest US construction equipment manufacturer, announced that it expected losses of 100-200 million US dollars from tariffs – putting upward pressure on its future prices
The Wall Street Journal summed up the result of tariffs as "Soda, Motorcycle Prices Rise as Tariffs Hit Home for Consumers".
But these tariffs cover a much smaller range of goods than tariffs affecting 250 billion US dollars of imports which have been threatened against China. The price rise consequences for US buyers will therefore be more severe.
There should be doubt as to who the 850 US dollars lost by US tariffs against China would be paid. A tariff is simply a tax. It is not paid by the producers – they generally receive the same price for their product to which the tariff is added. The higher price after the tariff is paid by the consumer – with the revenue from the tariff being paid to the tax authorities.
In other words, the threatened President Trump’s proposed tariffs are a threat of a tax of 850 US dollars a year on every American household.
That is why every US household faces that simple choice. Think what they could do with 850 US dollars: They could buy a new smartphone, take a weekend away, buy new furniture or electrical goods. Or they could give 850 US dollars to the tax collector. It doesn’t seem like a very difficult choice.
Would you rather have 850 US dollars to spend on your family, or would you give it to the tax authorities? That is the choice for US families in thinking about tariffs against China.
John Ross is a senior fellow at Chongyang Institute for Financial Studies under Renmin University of China.