
Are the Impact of the Tariff Hikes Being Passed to American Businesses and Consumers?
A recent study by the New York Fed reveals that the tariff hikes imposed on Chinese goods has not had a corresponding effect on the prices charged by Chinese companies, and instead appear to be passed on to American businesses and consumers. Over the past 16 months, the US has announced as much as 25% tariffs on a range of Chinese imports, which should ideally have driven down the cost of goods in case Chinese manufacturers were absorbing the impact of these tariff hikes.
However, data about imports between June 2018 and September 2019 reveals that import prices of Chinese goods have only declined by 2%, a pace of decline that matches imports from other markets on account of the slowdown in global trade. The nearly steady trend in import prices of Chinese goods reveals that US businesses and consumers are paying the price for the increased tariffs instead of it hurting the Chinese businesses.
Although, the higher tariffs are impacting China indirectly, as can be seen by the reduction in import of machinery and electrical equipment by Chinese manufacturers. Chinese businesses have also reduced their imports of electronics from the US by 6% since 2017.
The dollar prices of Chinese imports having barely changed even as the Chinese yuan has lost around 10% of its value since the beginning of the trade war. This supports the US’s claims that China is manipulating its currency on purpose to maintain the competitive edge in global trade despite the tariff hikes.