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European study finds US-China trade war hits China harder

2018-12-5

THE United States' 25 per cent rise in tariffs depresses Chinese producer prices by 20.5 per cent and increases US consumer prices by 4.5 per cent, according to a study published by the European Network for Economic and Fiscal Policy Research.

The Trump administration has imposed 25 per cent tariffs across US$50 billion worth of Chinese goods in 2017 import value and is set to raise tariffs from across another $200 billion worth of Chinese goods from 10 per cent to 25 per cent on January 1.


"The US government has strategically levied import duties on goods with high import elasticities, which transfers a great share of the tariff burden on to Chinese exporters," highlighted the study's authors Benedikt Zoller-Rydzek and Gabriel Felbermayr, reported American Shipper.


"Chinese firms pay approximately 75 per cent of the tariff burden and the tariffs decrease Chinese exports of affected goods to the United States by around 37 per cent."


This implies that the United States' trade deficit with China falls by 17 per cent, and the additional tariffs generate US government revenues of $22.5 billion, which could be redistributed in the US, the authors wrote.


The study examined 702 four-digit product categories from the Harmonized System. Consumer goods are the most heavily impacted by the tariffs, with prices expected to rise 6.5 points on average, with prices of intermediate inputs expected to go up by 5.2 percentage points.


"Low-income US households in particular will be affected by this increase, as they spend a considerable share of their income on (cheap) Chinese imports," the authors wrote. "This will lead to a stronger decline in real income for US low-income households."


While US tariffs will raise prices of affected Chinese products in the US, lower the profit margin of Chinese exporters and could shut Chinese firms out of the market, it's unclear whether US firms, especially multinationals, will have sufficient time to plug any emerging shortages in their supply chains ahead of the next scheduled tariff rise, the study said.


Multinationals' high initial investments in Chinese production sites makes it "very costly" to adjust supply chains and profits may therefore decline, according to the study.


The study points out that the tariffs on China affect half of the United States' import volume from China and 12 per cent of all US imports.

 
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