How Trump thinks tariffs work (and how they actually work)

Earlier this month, Trump argued that this dynamic did not exist. “The Tariffs paid to the USA have had little impact on product cost, mostly borne by China,” he wrote, intimating that Chinese companies have lowered their prices to remain competitive. That has not, in fact, happened. In a new paper, economists based at Princeton, Columbia, and the Federal Reserve Bank of New York write: “Although in principle the effect of higher tariffs on domestic prices could be offset by foreign exporters lowering the pre-tariff prices that they charge for these goods, we find little evidence of such an improvement in the terms of trade up to now.” The authors estimate that Trump’s tariffs were costing consumers about $1.4 billion in real income a month by the end of 2018.

Trump has promised to use the revenue that the government raises from China (remember, the government is not actually raising money from China) to help businesses harmed by the trade war. Washington will demand payments from Beijing, use the money to buy food, and pass the food on “to starving people in nations around the world!” he said. It is true that the government is planning more aid for agricultural firms hit by the trade war, and that Trump wants the U.S. Department of Agriculture to figure out some work-around. But at best, such a plan would involve taking American taxpayer dollars and using them to buy American agricultural goods to ship abroad or to bail out American farms.