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For US, tariffs on China do not cover the costs of Trump’s trade war

US President Donald Trump on Monday portrayed America as being on the winning end of his trade war, saying tariffs are punishing China’s economy while generating billions of dollars for the United States, an economic victory that will allow him to continue his fight without domestic harm.

[WASHINGTON] US President Donald Trump on Monday portrayed America as being on the winning end of his trade war, saying tariffs are punishing China’s economy while generating billions of dollars for the United States, an economic victory that will allow him to continue his fight without domestic harm.

“We’ve taken in tens of billions of dollars in tariffs from China,” Mr Trump told reporters during a “Made in America” product event at the White House. While China has taken US$16 billion “off the table” by stopping its purchases of American agriculture, he said, the United States has “taken in much, much more — many times that in tariffs.”

But government figures show that the revenue the United States has collected from tariffs on US$250 billion worth of Chinese goods is not enough to cover the cost of the president’s bailout for farmers, let alone compensate the many other industries hurt by trade tensions. The longer Mr Trump’s dispute with China drags on, the more difficult it could be for him to ignore that gap.

Mr Trump’s tariffs on Chinese imports raised US$20.8 billion through Wednesday (July 10), according to data from United States Customs and Border Protection. Mr Trump has already committed to paying American farmers hurt by the trade war US$28 billion.

The president has rolled out two rounds of financial support for farmers: a US$12 billion package that was announced last July, of which nearly US$10 billion has been spent, and an additional US$16 billion announced in May.

The government has provided no such benefit to the myriad other businesses, including plane makers, technology companies and medical device manufacturers, that have lost contracts and revenue as a result of Mr Trump’s tariffs and China’s retaliation against American goods.

Trade talks with China have faltered in recent months, and Mr Trump and his aides appear to be in no hurry to resolve the dispute, projecting confidence that China is suffering more of the harm, if not all of it.

Mr Trump’s tariffs are undeniably hurting China, where exports power about 20 per cent of the economy, compared with 12 per cent in the United States. On Monday, the Chinese government said its economy had grown at a 6.2 per cent annual rate in the second quarter, the lowest rate in 27 years.

“The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries,” Mr Trump wrote on Twitter on Monday morning, commenting on the Chinese growth figures. “Thousands of companies are leaving. This is why China wants to make a deal with the US, and wishes it had not broken the original deal in the first place.”

There is little sign, though, that China’s loss is America’s gain. Much of the business activity is shifting to other low-cost countries, like Vietnam, with a transition cost attached for US companies that depend on them.

Numerous companies have announced changes in their supply chains or other effects from the tariffs, and more could be revealed as companies report second-quarter earnings in coming weeks. Nintendo has accelerated the shift of its Switch console to Vietnam from China, according to Panjiva, a supply chain research firm, while GoPro, Hasbro and other companies are reworking their supply chains to reduce their exposure to China.

The president and his advisers have argued that now is the time to try to force China to change trading practices that they say have hurt US companies and resulted in the loss of US jobs. The administration argues that the status quo was not without costs to the US economy. An investigation by the administration into Chinese intellectual property theft found that China’s policies had resulted in harm to the US economy of at least US$50 billion per year.

Many trade experts and business leaders support confronting Beijing, and some have said the heavy cost of the trade war will be worth it if the United States can persuade China to open up its economy. But most disagree with the administration’s claim that the trade war is having no negative effect on US businesses.

“Certainly it is absolute folly to suggest that this is cost free for the US,” said Rufus Yerxa, the president of the National Foreign Trade Council, which represents major US exporters.

Numerous studies have shown that US consumers are bearing much of the cost of the tariffs. Studies from the Tax Foundation in Washington and the Penn Wharton Budget Model at the University of Pennsylvania have shown that the tariffs amount to a significant tax increase on Americans, by raising the prices of goods. The damage is concentrated, as a percentage of income, among the lowest earners, who spend a larger share of their pay on imports than the upper middle class and the rich.

The administration has gradually increased the amount of Chinese goods subject to tariffs over the past year, from an initial US$34 billion to a total of US$250 billion, and ramped up the tariff rate on those goods.

But the monthly pace of revenue collection from tariffs has not increased this year. That’s because America is importing fewer Chinese goods than it did a year ago, which has canceled out the higher tariffs on a larger share of Chinese goods.

That decline appears to be the product of an overall slowdown in trade — which has contributed to weakened exports for US manufacturers — and the shift in supply chains to other countries. Imported goods from Vietnam have risen more than 30 per cent this year from a year ago, Commerce Department data show.

Tariff revenue would likely surge if Mr Trump followed through on his threat to impose tariffs on nearly all Chinese goods.

The administration has tried to put the levers of the government to work to shelter and support US businesses. On Monday, Mr Trump signed an executive order requiring that 95 per cent of the steel and iron that goes into projects funded by federal contracts eventually be American made, up from 50 per cent.