White House economic adviser Larry Kudlow signaled on Sunday that the tariff war with China could keep going for a while longer — and he argued Americans are not alone in paying the consequences of it.
“I think the economic costs are de minimis,” Kudlow told Fox News’ Chris Wallace. “The potential economic gains of a good deal that opens up China, and makes them legal trade partners, those gains are huge. So that’s a cost-benefit analysis that I really like.”
President Trump announced an increase in tariffs on Chinese goods last Sunday, raising tariffs from 10 percent to 25 percent on $200 billion of Chinese-made products. That increase went into effect Friday, hours before the Trump administration announced the latest round of trade talks with China ended without the two countries reaching a deal.
The uncertainty caused by the talks and the new tariffs led to stock market upheaval and a promise from China that retaliatory measures will soon be announced.
Despite market concerns and fears over the impact China’s countermeasures could have, Kudlow said he believes the president hasn’t lost the public’s trust on trade.
“Politically, I think the country is completely behind the president and his tough approach on China and, in fact, as you know, leading Democrats such as Sen. Schumer and others have supported the president in this battle.”
As Vox’s Emily Stewart has reported, President Trump has made a number of inaccurate statements about the tariffs, including that they help to “make our country richer than ever before.”
Wallace played Kudlow video of Trump making a similar incorrect statement about the tariffs Thursday at the White House, when the president claimed that tariffs are, “paid for mostly by China, by the way, not by us,” and said, “Larry, that isn’t true. It’s not China that pays tariffs. It’s the American importers, the American companies that pay what in effect is a tax increase and oftentimes passes it on to US consumers.”
“Fair enough,” Kudlow responded. “In fact, both sides will pay. Both sides will pay in these things.”
“But the tariffs on goods coming into the country, the Chinese aren’t paying,” Wallace said.
“No, but the Chinese will suffer GDP losses and so forth,” Kudlow responded.
“I understand that,” Wallace said. “But the president says that doesn’t — that China, it pays the tariffs, they may suffer consequences but it’s US businesses and US consumers who pay, correct?”
“Yes, to some extent. Yes, I don’t disagree with that,” Kudlow conceded. “Again, both sides will suffer on this.”
Kudlow was correct that both sides will indeed suffer.
As Vox’s Matthew Yglesias has explained:
The way a tariff works is that it’s basically like a sales tax, except instead of being paid on all goods, it’s paid only on imported goods. As with any kind of tax, a tax on Chinese-made goods is obviously bad for Chinese manufacturers. But as with any kind of tax, the financial price is paid in large part by consumers of Chinese-made goods — and, critically, by consumers of domestic goods that compete with Chinese-made ones. Once Trump levies tariffs on Chinese-made appliances, for example, not only does that tend to force Chinese manufacturers to raise prices, but it also tends to encourage American manufacturers to raise prices too since they no longer face as much price competition from China.
Raised prices can lead to decreased sales of any targeted good. Speaking of decreased sales, there is also the issue of China’s retaliatory tariffs on US products. China has promised new action in response to Trump raising tariffs on Chinese goods. However, decreased sales of US goods affected by the last round of tariffs have already caused problems for producers. A decrease in the sales of soybeans and other agricultural products, for example, has helped to trigger US farm bankruptcies.
Kudlow addressed the burden the tariffs have put on American farmers, as well as plans for increased farm aid.
“Maybe the toughest burden is on farmers, and the agriculture sector, we get that,” the economic adviser said. “We’ve helped them before on lost exports. I think we had an authorization of $12 billion. We will do it again if we have to, and if the numbers show that out.”
Kudlow then claimed that the tariffs benefit farmers, particularly those in need of aid: “The tariffs themselves are producing a big increase in customs duties — big increase — perhaps something of a magnitude this past 12 months of maybe $25 billion. That will help finance farmers, that will help the transition.”
The math on the tariffs paying for the aid, however, runs into an important economic problem: American importers (who pay the customs duties) and consumers are the ones footing the bill.
As Michael Klein, a professor of international economic affairs at Tufts University and founder of the nonpartisan economics publication Econofact, has previously explained, in this way, the tariffs are similar to a sales tax.
“It’s like saying, ‘I put a sales tax on producers, isn’t this great we’re getting all this money?’” Klein said. “And then consumers say, ‘Wait, that’s from my wallet.’”
In other words, even if the tariffs are resulting in revenue to finance aid to the farmers, it’s Americans who are paying for it — instead of farmers and other producers making money by actually selling their products abroad.