How does a tariff work? A tariff is a tax on imported goods, so if a Chinese good is sold to an American, the American literally has to pay the tax.
The quote above is from Mr. Trump, as recounted in Peter Coy’s “The Real Pain From Trump’s Tariffs Trickles Down to Consumers” in Bloomberg Businessweek; it clearly highlights the fact that either (1) Mr. Trump has no understanding of how tariffs work, or (2) he does understand, and he’s lying....
Trump is apparently assuming that the price remains the same domestically for the imported good and the exporter lowers the price to accommodate the tariffs.
Minzie Chinn explains why that is magical thinking, given the reality. Tariffs spell higher prices for imports domestically.
This is essentially a tax on consumers of imported goods.
Econbrowser
“So China Is Now Paying Us Billions of Dollars in Tariffs”
Menzie Chinn | Professor of Public Affairs and Economics, Department of Economics, Robert M. La Follette School of Public Affairs, University of Wisconsin at Madison, and Co-editor, Journal of International Money and Finance
Econbrowser
“So China Is Now Paying Us Billions of Dollars in Tariffs”
Menzie Chinn | Professor of Public Affairs and Economics, Department of Economics, Robert M. La Follette School of Public Affairs, University of Wisconsin at Madison, and Co-editor, Journal of International Money and Finance
2 comments:
“exporter lowers the price to accommodate the tariffs. “
Must be happening as the CNY has been weak... reflecting reduced real terms of trade... China also taking (to them) stimulative measures in response like adding more reserves for banks to lend out domestically... China equity market down big...
like adding more reserves for banks to lend out domestically... Franko
It is impossible for banks to lend out their reserves to the non-bank private sector unless from their vault cash.
Or is the Chinese non-bank private sector now allowed accounts at the Central Bank itself?
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