Billions of dollars are “pouring into the coffers of the United States” thanks to President Donald Trump’s tariffs on $250 billion of Chinese goods, the president tweeted Thursday morning.
But many were quick to note that Trump either doesn’t understand how tariffs work or is deliberately misleading Americans about their effects.
“If companies don’t want to pay Tariffs, build in the U.S.A.,” Trump wrote. “Otherwise, lets just make our Country richer than ever before!”
But that’s not really how tariffs work: The US may be generating some revenue from tariffs, but billions of dollars aren’t pouring in. Moreover, a lot of the money that is made off of tariffs comes from US consumers — not Chinese companies.
“If you think about who’s actually paying the tax, it’s like a sales tax. It’s like saying, ‘I put a sales tax on producers, isn’t this great we’re getting all this money?’ And then consumers say, ‘Wait, that’s from my wallet,’” said Michael Klein, a professor of international economic affairs at Tufts University and founder of the nonpartisan economics publication Econofact. “It’s just another example of taking where there’s a tiny germ of truth and blowing it up to the point where it’s absurd, for his own political purposes.”
So far, the effects of Trump’s tariffs have been relatively mild, Vox noted, due to the strategic way they were implemented:
As Vox’s Matt Yglesias recently explained, the US government with its initial rounds of China tariffs was careful to make sure the products it targeted had foreign-made alternatives:
When that happens, US purchasers switch to non-Chinese alternatives, and then consumers from outside the US tend to switch around and start buying the Chinese products. The overall impact is slightly less efficient global supply chains, some real pain to Chinese firms that need to find new customers, and a limited impact on American prices.
A study from EconPol Europe published earlier this month showed that while Americans are paying about 4.5 percent more for Chinese goods hit by the first round of tariffs, prices received by Chinese companies importing to the U.S. have dropped 20.5 percent.
That means that thus far, the tariffs have been mostly, but not entirely, paid for by China, but it’s not going great for anyone. And if Trump’s meeting with Xi doesn’t go well and the trade war escalates, the economic effects of tensions could worsen.
And it’s not going to be making the US significantly richer, because the more tariffs, the less incentive to import the goods affected, and therefore the less money being collected.
“If the point of tariffs is to reduce what you’re buying, that means you’re not going to make that much money,” Klein said.
Of the money that does come in, much will have come from Americans by way of higher prices and increased inflation — two issues Trump has not seemed to take too seriously.
Trump, who is personally very wealthy, has been rather cavalier about the potential for prices going up. In an interview with the Wall Street Journal this week in which he appeared to float the idea of putting tariffs on iPhones and laptops, he said, “I mean, I can make it 10 percent, and people could stand that very easily.”