Explainer: Who pays Trump’s tariffs, China or US customers and companies?

US President Donald Trump says China pays the tariffs he has imposed on $250 billion of Chinese exports to the United States.  But  that is not how tariffs work. China’s government and companies in China  do not pay tariffs directly. Tariffs are a tax on imports. They are  paid by US-registered firms to US customs for the goods they import into  the United States. 

Importers often pass the costs of tariffs on  to customers - manufacturers and consumers in the United States - by  raising their prices. 

US business executives and economists say US consumers foot much of the bill through rising prices. 

White House economic adviser Larry Kudlow has acknowledged that “both sides will suffer on this,” contradicting the president. 

The  tariff bill is set to rise further. Trump this month directed US Trade  Representative Robert Lighthizer to launch the process of imposing  tariffs on the remaining $300 billion of goods from China. That includes  products ranging from cellphones to baby pacifiers. 

That would mean almost all imports from China would be subject to a 25 percent import tax. US companies see rising consumer prices

A growing number of US companies has warned about the negative impact of the tariffs on US consumers. 

Nike  Inc and 172 other footwear companies have urged Trump to remove  footwear from a list of imports facing a proposed extra 25 percent  tariff, warning the move could cost consumers an additional $7 billion a  year. 

Walmart Inc, the world’s largest retailer, and department  store chain Macy’s Inc have warned that prices for shoppers will rise  due to higher tariffs on goods from China. 

What the ‘tariff man’ says

Trump, who has called himself the “Tariff Man,” has often repeated that China pays for US tariffs on its goods. 

“We  have billions of dollars coming into our Treasury — billions — from  China. We never had 10 cents coming into our Treasury; now we have  billions coming in,” he said on Jan. 24. 

On May 5, he tweeted: “For 10 months, China has been paying Tariffs to the USA.” 

As  well as imposing tariffs on Chinese goods, Trump has also imposed a tax  on global steel and aluminum imports and shipments of washing machines  and solar panels. 

How tariffs really work

US  Customs and Border Protection (CBP) collects the tax on imports. The  agency typically requires importers to pay duties within 10 days of  their shipments clearing customs. 

Through May 1, Washington has assessed $23.7 billion in tariffs since early 2018, according to data from the CBP. 

Total  tariff revenue - including levies that pre-dated Trump - shot up by 89  percent in the first half of the current fiscal year starting Oct. 1, to  a total of $34.7 billion, according to US Treasury data. 

Every  item imported into the United States legally has a customs code.  Importers are expected to check the tariffs and other taxes and duties  due on the goods they bring in, calculate what they owe, and pay it. 

US Customs reviews payments and sends importers a fresh bill if it detects underpayment. 

Importers  also have to post payment guarantees, or import bonds, with customs.  The costs of these bonds have risen with tariffs, an additional burden  on US-based firms importing goods from China. 

Do Chinese suppliers bear the costs of US tariffs?

Chinese  suppliers do shoulder some of the cost of US tariffs in indirect ways.  Exporters sometimes, for instance, are forced to offer US importers a  discount to help defray the costs of higher US duties. Chinese companies  might also lose business if US importers find another tariff-free  source of the same goods outside China. 

And outside of tariffs,  the Trump administration’s decision to add China’s Huawei, the world’s  largest telecoms equipment maker, to a trade blacklist, has hit that  company hard. 

But US-based importers are managing the higher tax  burden in a number of ways that hurt US companies and customers more  than China. 

Such strategies include accepting lower profit  margins; cutting costs - including wages and jobs for US workers;  deferring any potential wage hikes, as well as passing on tariff costs  through higher prices for US consumers or companies. 

Most importers use a mix of such tactics to spread the higher costs among suppliers and consumers or buyers. 

Higher prices for tractors, washing machines

Higher  duties on imports of metals and Chinese products, for example,  increased Caterpillar’s production costs by more than $100 million last  year. In response, the heavy-duty equipment maker increased prices for  its products. 

Tractor manufacturer Deere & Co estimates a  $100 million increase in its raw materials costs this year because of  Trump’s tariffs on Chinese imports. Deere has cut costs and increased  prices to protect its profits. 

A Congressional Research Service  report in February found that the tariffs boosted washing machine prices  by as much as 12 percent, compared to January 2018, before tariffs took  effect. 

Steel and aluminum tariffs increased the price of steel  products by nearly 9 percent last year, pushing up costs for steel users  by $5.6 billion, according to a study by the Peterson Institute for  International Economics. 

US companies and consumers paid $3  billion a month in additional taxes because of tariffs on Chinese goods  and on aluminum and steel from around the globe, according to a study by  the Federal Reserve Bank of New York, Princeton University, and  Columbia University.