US tariff revenues are way up, but China isn’t paying for them

Wash trades.
Wash trades.
Image: AP Photo/Ted Shaffrey
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The US government’s revenue from tariffs is soaring. From 2010 to 2018, the federal tax revenue received from customs duties barely budged, typically hovering around a rate of $30-40 billion per year. Then, Donald Trump’s trade war kicked in.

Due to an increase in tariffs implemented in September 2018, federal revenue from custom duties ran at a $75 billion annual pace in the first quarter of 2019, according to the US Bureau of Economic Analysis. Much of the boost is due to higher tariff rates on Chinese imports, the US’s top trading partner. The US is set to raise tariff rates from 10% to 25% on Chinese goods in 5,700 product categories tomorrow, though the Trump administration may decide to stop the hike if they believe trade negotiations with China are making sufficient progress.

In the first quarter of 2019, tariffs made up around 3.6% of all federal government revenue, compared with just 2.2% in the same quarter of 2018, and 1.8% in 2017.

Trump claims that these tariffs are increasing US government revenue at China’s expense. Economists almost universally agree that this is an inaccurate description of the source of this revenue. Rather, higher tariffs—which are paid by importers of goods from abroad, not exporters—can lead companies that sell imported products (or products with imported parts) to raise prices, meaning that American consumers indirectly pay the cost of the tariffs.

For example, a recently released study by economists at the University of Chicago and the US Federal Reserve found that tariffs imposed in 2018 by the US on imported washing machines led to a 12% increase in prices for consumers. So, although the US government collected more money from washing machine duties—about $80 million on an annualized basis—US consumers paid for it in higher prices. In the case of washing machines, the researchers think it cost consumers about $1.5 billion extra via higher prices, almost 20 times more than what was gained in government revenue.