Economic Impact of Escalating Tariffs on Chinese Products

Federal Tax

Launch Tracker: The Economic Impact of U.S. Tariffs and Retaliatory Actions

President Trump is preparing to meet with Chinese President Xi Jinping this weekend to discuss trade policy and tariffs. The U.S. has pursued a policy of tariffs to address China’s unfair trading practices and China has retaliated, resulting in an escalation of trade barriers that piles on economic damage for American households and businesses.

First, the Trump administration imposed a 25 percent tariff on $50 billion worth of imports from China that was fully phased in during August 2018. In September, the administration then imposed a 10 percent tariff on $200 billion worth of goods; this rate is scheduled to increase to 25 percent beginning in January 2019. On top of these tariffs, the president has threatened to impose a 10 to 25 percent tariff on everything else that Americans import from China, about $267 billion worth of goods.

Using the Tax Foundation’s Taxes and Growth Model, we have estimated the impact of these tariffs on the U.S. economy. The combined impact of the imposed and scheduled tariffs would reduce the long-run size of the economy by $45 billion and eliminate 140,000 full-time equivalent jobs.

Table 1: Economic Impact of Tariffs on Products from China

Source: Tax Foundation Taxes and Growth Model, April 2018

Tariff

25% on $50B 10% on $200B Raise to 25% on $200B Total
Status: Imposed Imposed Scheduled January 1

Tariff Revenue (billions)

$13 $20 $30 $63

Long-run GDP

-0.04% -0.06% -0.09% -0.18%

GDP (billion$ 2018)

-$9.07 -$14.51 -$21.77 -$45.35

Wages

-0.02% -0.04% -0.06% -0.12%

FTE Jobs

-28,000 -45,000 -67,000 -140,000

If the administration pursues tariffs on the remaining balance of imports from China, the damage would worsen. For example, we estimate a 25 percent tariff on the remaining $267 billion worth of goods would reduce long-run GDP by $48 billion and eliminate 150,000 jobs.

Table 2: Economic Impact of Threatened Tariffs on Chinese Products

Source: Tax Foundation Taxes and Growth Model, April 2018

Tariff 10% on $267B or 25% on $267B
Status: Threatened   Threatened

Tariff Revenue (billions)

$27     $67

Long-run GDP

-0.08% -0.19%

GDP (billion$ 2018)

-$19.37 -$48.43

Wages

-0.05% -0.12%

FTE Jobs

-60,000 -150,000

Whether tariffs actually result in changes to China’s trading practices–evidence casts doubt on the effectiveness of such a strategy–these tariffs are harming American consumers and businesses right now. Tariffs will reduce U.S. economic output, incomes, and employment opportunities, while likely failing to achieve policy goals.

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