Trade Wars

Trump’s tariffs are said to have caused billions in losses

(Bloomberg) – In early 2020, a highly unlikely anomaly in world trade data began to emerge: China said it was selling more products to the United States than the United States said it was buying. to China.

It was a reversal of the normal pattern and a product of the two countries’ trade war, but not an intended consequence. Instead, it was likely due to misrepresentation by exporters in China and importers in the United States, according to new research by economists at the Federal Reserve.

U.S. companies could pay lower tariffs if they declared a lower value of goods imported from China, while Chinese companies could get higher returns from the value-added tax if they over-declared the value of exports, economists say .

Generally, the import value of a good when it enters one country must be greater than the value of the same good when it leaves another country. This is because import prices generally include the cost of freight and insurance, unlike exports.

Until February 2020, this was the case for bilateral trade between the United States and China. U.S. imports of goods from China have historically been considered to be of higher value than Chinese exports to the United States. However, since March, the opposite has been reported almost every month.

The report highlights the difficulty of winning trade wars with economic barriers such as tariffs, contrary to former President Donald Trump’s claims that victory would be easy. The distortions also reinforce arguments against Trump administration officials that U.S. tariffs fundamentally rebalance the skewed trade relationship between the world’s two largest economies, in which the United States has long had a large deficit.

Misrepresentation by US and Chinese companies is a big part of the reduction in the US-China trade deficit since the two sides began imposing tariffs on each other in 2018, argue Hunter Clark and Anna Wong , economists at the Fed. The trade balance contracted by 88 billion US dollars in 2020 compared to 2017, according to its calculation. Of that deficit, $ 55 billion is from U.S. tariff evasion, $ 12 billion is due to misrepresentation for higher Chinese VAT refunds, and the remaining $ 20 billion is unexplained.

“The trade dispute has had a much smaller impact on the US bilateral trade balance with China than it first appears when we look at US data,” they wrote. The underreporting of U.S. imports also means that around $ 10 billion in tariff revenue could have been lost, they estimated.

China’s latest trade figures also show slow progress in meeting purchasing targets agreed with the United States under the trade deal. Since January 2020, Chinese imports of manufactured, agricultural and energy products have amounted to nearly 157 billion dollars, or about 41% of the targets agreed by the two countries.

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