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U.S.-China Trade War Has Increased Consumer Prices, Imports from Other Countries

Thursday, November 07, 2019
Sandler, Travis & Rosenberg Trade Report

U.S. tariff increases have resulted in a substantial decline in imports from China and a corresponding increase in shipments from the European Union, Mexico, Taiwan, and Vietnam, according to a new report from the United Nations Conference on Trade and Development. The report also finds that the tariffs are hurting the U.S. in the form of higher consumer prices.

The report asserts that the Section 301 additional tariffs on List 1, 2, and 3 goods from China, which together comprise about 7,100 eight-digit HTSUS numbers, have been the main factor behind the reduction in imports of the tariffed products, which exceeded 25 percent between the first half of 2018 and the first half of 2019. In addition, China’s export losses have increased over time, with losses in the second quarter of 2019 relatively higher than in previous quarters. Nevertheless, China has been able to preserve nearly 75 percent of its trade with the U.S. in the affected products.

The report also finds that only beginning in the second quarter of 2019 was there evidence that the tariffs had begun to result in lower export prices for the affected Chinese goods. Instead, there is implicit evidence that the cost of the tariffs has been generally passed down to U.S. consumers.

The U.S. tariffs on China are resulting in an increase in imports from the rest of the world, the report states, but only when imports from China decline. Of the $35 billion loss in imports from China attributed to the tariffs, about 63 percent was replaced by imports originating elsewhere. The rest was lost due to lower demand in the U.S. and/or insufficient capacity from the rest of the world.

Taiwan has been the largest beneficiary of the tariff-caused trade diversion, the report asserts, with almost $4.2 billion in additional exports to the U.S. in the first half of 2019, largely office machinery and communication equipment. Other beneficiaries include Mexico, with about $3.5 billion in additional exports, mostly in the agri-food, transport equipment, and electrical machinery sectors; the European Union with about $2.7 billion, largely in machinery; and Vietnam with about $2.6 billion, mostly concentrated in communication equipment and furniture. Trade diversion effects were smaller but still substantial (between $0.9 and $1.5 billion) for Korea, Canada, and India.

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