“We analysed how the tariff burdens were shared between importers and exporters and got some surprising results,” says Lei Li, Assistant Professor of Applied Microeconomics at the University of Mannheim. “Chinese importers paid about two-thirds of China’s tariffs. Yet, U.S. importers shouldered 93 percent of price increases due to U.S. tariffs. Such a near-complete ‘pass-through’ is uncommon and astonishing given the power of the United States to influence terms of trade.”
Additional costs to importers due to tariffs
Lei Li and her co-authors estimate that U.S. tariffs were costing U.S. importers $1.21 billion per month in 2018 and $2.47 billion per month in 2019. This compares to costs for Chinese importers of $0.18 billion per month in 2018 and $0.51 billion per month in 2019. The period analysed is 2017-2019 using monthly data from the
U.S. Census Bureau and the Customs General Administration of China covering more than 17,000 products in total.
EPoS explanation
The differing price burdens are mainly due to import structures, trade policies, and specific tariff ‘pass-through’ of products, that is, the extent to which changes in import tariffs are passed on to importers. China brought in more products with lower tariff pass-through, such as agricultural goods. In contrast, the U.S. shipped in more products with higher pass-through, such as electronics. The two countries adopted different strategies in the trade war.
Short-term vs longer-term strategies
“China chose a short-term strategy setting tariffs in sectors where it has market power as a large importer,“ says Lei Li. “The U.S. seems to have been less concerned about reducing the trade deficit and more about future competition in high-tech sectors in the longer run.”
Background
The U.S. and China were locked in a tit-for-tat tariff war starting in 2018. With the trade agreement signed in 2020, the conflict was alleviated. The U.S. is currently reviewing whether to keep tariffs in place.
The presented discussion paper is a publication without peer review of the Collaborative Research Center Transregio 224 EPoS. Access the full discussion paper here. Find the list of all discussion papers of the CRC here.
Authors
Chaonan Feng, Ph.D., candidate School of Economics and Management, Beihang University, Beijing, China
Prof. Liyan Han, Ph.D., School of Economics and Management, Beihang University, Beijing, China
Prof. Lei Li, Ph.D., Department of Economics, University of Mannheim, Collaborative Research Center Transregio 224 EPoS, Germany