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1) If China doesn’t pay the tariffs, then why does China attempt to evade tariffs through transnational shipping?
2) Of course China (or EU, or anyone else) pays the tariffs. That’s how the process works.
If you want to deliver $1 million in exported goods with a 25% tariff, you pay $250,000 as a U.S. duty.
YOU, the exporter, pay the duty upon arrival at port.
3) The question accurately framed then becomes: does the exporter then pass on that additional cost to the importer (the U.S. company)?
Right now, the answer is no. China is not transferring the vast majority of the tariff cost to the arrival price of the product.
4) If the arrival price did increase, then yes it is possible that importer (distributing the product) may pass along the price increase to the wholesaler or ultimately retail consumer.
But that’s not happening.
5) Fox News (Goldman Sachs) graphic actually proves that point.
Notice they use an *index. Not an actual price % increase. But regardless, the graphic shows a 103% index on tariff goods. Or in simpler terms a 2% increase in price.
[*On indexes 101 is even]
6) Steel (25%) and Aluminum (10%) tariffs have been in place since 2017. 25% tariffs on $250 billion in Chinese imported goods has been in place since June 2018 (over a year).
Yet the prices on those specific tariff goods has only gone up in the USA by 2% net upon arrival.
7) Overall U.S. inflation (consumer price index) is 1.5%
The tariff goods are 2% realized, and non tariff goods are defationary (actually lower prices) by approximately 1%. [We are also importing deflation]
8) The difference between 25% tariff being paid by the exporter (china), and only 2% increase in price felt by the importer (U.S.) is the amount being offset by the exporter (China).
In this example China is paying a 25% tariff and absorbing 23% to keep prices low.
9) So you can clearly see that China is paying the tariff, AND not passing that along to the importer.
Why and How would they do this?...
10) The Chinese government absorbs the tariff in two ways.
First, by directly subsidizing the industry affected by the tariff. The CCP or Bank of China literally pays or underwrites the export cost to the corporation.
11) The second way is by devaluing their currency... which makes their stuff cheaper when pegged against the Yuan.
Dollars, with higher value, buy more stuff backed by Yuan.
It costs the importer in the U.S. less dollars to buy the same amount of stuff from China.
12) Devaluing local currency, which naturally inflates the value of the dollar, is a way for export dependent nations to offset tariffs and keep prices static.
Note: The EU is now doing the same thing; for the same reason.
13) The trade is done in dollars, therefore the same dollars buy more product. It’s not difficult to see.
However, as an outcome of the devaluing, the non-tariff exported product also costs less. It takes less dollars to buy the non tariff goods also.
14) The import of non tariff goods at lower prices, due to a stronger dollar, is how we are importing deflation.
As long as there is a trade deficit with the country doing the devaluation, we will import deflation on non tariff products.
15) Because this financial trade process is outside the reach of the U.S. Federal Reserve; meaning the trade exchange is external to the U.S. domestic economy; the Fed is unable to influence imported deflation/inflation by raising or lowering lending rates (interest rates).
16) It is this dynamic that is causing the International Monetary Fund to increase its projections of the growth of the U.S. economy, and downgrade the projections of those global manufacturing nations who are dependent on the U.S. Market.
17) When anyone says U.S. Consumers pay for tariffs, it’s just a flat out lie.
The exporter pays the tariff upon arrival in order to be allowed to offload product into the U.S. market.
In the current situation China is absorbing 23% of that 25% tariff and NOT raising the price.
18) China and EU have devalued their currency in an effort to block the impacts from President Trump & the ‘America First’ trade policy.
Because those currencies are pegged against the dollar, the resulting effect is a rising dollar. IMF not happy.
19) In essence, the globalist IMF is now blaming President Trump for having a strong economy that forces international competition to devalue their currency.
20) That’s the stupid hypocrisy of global banking outlooks. They make a decision to devalue their currency, which causes the dollar value to rise, and then turn around and blame the U.S. dollar for being overvalued.
21) In the bigger picture this is why President Trump is the most transformative economic President in the last 75 years. The post-WWII Marshall Plan was set up to allow Europe and Asia to place tariffs on exported American industrial products.
22) Those tariffs were used by the EU and Japan to rebuild their infrastructure after a devastating war. However, there was never a built in mechanism to end the tariffs…. until President Trump came along and said: “it’s over”!
23) After about 20 years (+/-), say 1970 to be fair, the EU and Japan received enough money to rebuild. But instead of ending the one-way payment system, Asia and the EU sought to keep going and build their economies even larger than the U.S.
24) Additionally, the U.S. was carrying the cost of protecting the EU (via NATO) & Japan w/ our military. The EU/Japan didn’t need to spend on defense because the U.S. essentially took over that role. That military role, just like the tariffs, never ended. Again, until Trump.
25) The U.S. economy was the host for around 50 years of parasitic wealth exfiltration, or as most would say “distribution”.
[Note I use the term *exfiltration* because it better highlights that American mfr corporations paid tariffs to access EU and Asia markets]
26) President Trump is the first and only president who said: “enough”, and prior politicians who didn’t stop the process were “stupid” etc. etc.
Obviously, he is 100% correct.
27) For the past 35 years the U.S. was a sucker to keep letting the process remain in place while we lost our manufacturing base to overseas incentives.
28) The investment process from Wall Street (removal of Glass-Stegal) only made the process much more severe and faster. Wall Street was now investing in companies whose best bet (higher profit return) was to pour money overseas.
29) This process created the “Rust Belt”, and damn near destroyed the aggregate manufacturing industry.
30) Fast forward 2017 through today, and POTUS Trump is now engaged in a massive and multidimensional effort to re-balance the global wealth dynamic.
By putting tariffs on imports he has counterbalanced the never-ending Marshal Plan trade program and demanded renegotiation(s).
31) Trump’s goal is reciprocity; however, the EU and Asia, specifically China, don’t want to give up a decades-long multi-generational advantage. This is part of the fight.
32) One could reasonably argue that China’s economic rise happened inside this period, and as a consequence they have no comprehension of an economic history without the institutional advantages.
——End——

Although I support tariffs on China for strategic and economic reasons, I believe there are some errors in his argument - but that the essence of it is correct, and a great insight. The Post-WWII trading system was designed to allow other countries to develop, based on systematic trade advantages over US producers, and that has long outlived its appropriateness.

Importers are the ones who pay at the port, not exporters. Large Chinese businesses receive their goods at the port, and pay the tariffs, but others are shipping directly to US customers, not shipping to their own US subsidiary. So it is mixed, as who actually cuts the check. His point that consumer inflation (actual passing on of costs to consumers) has been negligible so far. A big reason for that is that the Chinese companies have largely been discounting the cost of the tariffs to their US customers - in effect paying the tariffs, even when shipping directly to a US customer.

25% tariffs on $250 billion of Chinese imports have nor been in effect since June of 2018, only since June of this year 2019. So we have not seen their full effects play out yet.

YOU, the exporter, pay the duty upon arrival at port.

It takes seconds of research to show that this isn't true.

The US International Trade Administration says to companies wanting to export:

"The tariff, along with the other assessments, is collected at the time of customs clearance in the foreign port. Tariffs and taxes increase the cost of your product to the foreign buyer and may affect your competitiveness in the market."

Is the author lazy or dishonest?

Steel (25%) and Aluminum (10%) tariffs have been in place since 2017. 25% tariffs on $250 billion in Chinese imported goods has been in place since June 2018 (over a year). Yet the prices on those specific tariff goods has only gone up in the USA by 2% net upon arrival.

By the Administration's own admission the tariffs levied to date have been designed to not directly hit consumer goods. The costs are being borne by manufacturers and passed along to consumers, but the tariffed raw materials usually represent a small percentage of the total cost of the end consumer product.

The next round, however, is going to directly hit consumer goods which is why you see the market reaction that you do.

The difference between 25% tariff being paid by the exporter (china), and only 2% increase in price felt by the importer (U.S.) is the amount being offset by the exporter (China). In this example China is paying a 25% tariff and absorbing 23% to keep prices low.

Simplistic and wrong.

Some of the increase is being offset by a weaker yuan and some by Chinese exporters, but a lot is being absorbed by US manufacturers. Just look at the earning statements from Caterpillar, Deere, etc. Their costs for raw materials have gone up and they haven't been able to pass all of it along to consumers, hence lower earnings.

Trump’s goal is reciprocity; however, the EU and Asia, specifically China, don’t want to give up a decades-long multi-generational advantage.

So why kill TPP which made huge strides towards reciprocity for the participating members?

The analysis also completely ignores the billions in costs and disruption caused to US producers by China's retaliatory tariffs.