WHY ARE IMPORT TARIFFS PAID BY US CONSUMERS?

Presidential candidate Donald Trump has proposed generating trillions of dollars for the US treasury by imposing 60% tariffs on   imports from China and 20% tariffs on all other imports.   His understanding -- or at least his sales pitch to the voters -- is that the tariff is free money paid by the exporting countries for the privilege of selling goods in the US.   In his imagining, the US income tax and corporate taxes can be reduced by the amount of revenue generated by these tariffs. He entertains the notion that he alone has discovered this free money mechanism that has been overlooked by the experts.    

Unfortunately, the import tariff is actually paid by consumers who buy the imported products.   For example, if a consumer buys a Chinese-manufactured washing machine at her local Home Depot, the purchase price she pays must cover all of the costs incurred to produce and transport the washer from its point of manufacture in China to the point of sale here.   

This economic principle is counterintuitive for many people, apparently including Mr. Trump. But, before election day, voters should understand this better than Mr. Trump!

Perhaps an example would help; let's follow the money -- and the washing machines. Imagine a container ship carrying fifty thousand containers, each of standard size:  40 feet long by 8 feet wide by 8.5 feet high.  One of those containers is sitting in the port of Shanghai loaded with 30 washing machines purchased by Home Depot. Each machine has a bar code, and, after the container is loaded, sealed and locked, the container itself is also assigned a bar code.  US Customs officials scan the codes, transmitting the record of the transaction to Home Depot, the US Government Customs Office, and the Chinese state-owned enterprise that built the washing machine. Next a  gigantic claw picks up the entire container and gently places it in the hold of the container ship bound for the port of Long Beach, California.   

US Customs Officials in Long Beach know the contents of the container and their wholesale price. Before Home Depot can take delivery of the container, it must pay the Trump 60% import tariff to the US Customs Office.   After that money transfer to the US Treasury is completed, another gigantic claw picks up the container and puts it on ground transportation, either a flatbed truck or freight rail car to be shipped to a terminal facility in a major city such as Chicago or St. Louis or Kansas City where Home Depot will take delivery of the washing machines and distribute them to their "big box" retail stores.  From there consumers can buy the washing machines.

Every step in this process costs money:  from production back in China; the  shipping costs to move the container from Shanghai across the Pacific Ocean to Long Beach; the costs of transferring the container from ship to ground transportation to the Home Depot stores where the buyer must pay a price sufficient to covers all costs.

The import tariff is simply one of the many costs of doing business paid for by the consumer. The cost to the average American consumer of Trump's proposed import tariff is estimated to be $4,000 per year.

 

 

 

 


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