May 30, 2019 - Economy

What the deadweight of tariffs will cost you

Reproduced from Federal Reserve Bank of New York; Chart: Axios Visuals

U.S. consumers will actually pay less in tariff penalties or taxes with the imposition of 25% tariffs on Chinese goods, but they'll pay a lot more overall, according to new research from the New York Fed.

By the numbers: The higher tariff rate of 25% will cost American consumers more than $100 billion a year. Most of that loss will come from the deadweight loss of consumers buying more expensive, or less efficient, products because of the tariffs.

The N.Y. Fed's Mary Amiti, Stephen J. Redding, and David E. Weinstein explain:

"[T]he 10 percent tariffs on Chinese imports might cause some firms to switch their sourcing of products from a Chinese firm offering goods for $100 a unit to a less efficient Vietnamese firm offering the product for $109. In this case, the cost to the importer has risen by nine dollars, but there is no offsetting tariff revenue being paid to the government. This tariff-induced shift in supply chains is therefore called a deadweight or efficiency loss."

What's next? A new report from Citi estimates additional tariffs on the list of $300 billion worth of Chinese goods will be much worse for consumers.

  • Goods included will represent 67% of total imports of consumer goods from China, 66% of vehicles, 19% of industrial supplies and 38% of capital goods.

Go deeper: The world can't afford a trade war right now

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