Last year, when the Trump administration imposed tariffs on Chinese imports, officials insisted that China would pay the cost "to trim down their prices and absorb import taxes" of up to 25 percent. Apparently, this is far from what is actually going on.
Instead, the prices implemented by China have barely changed, which means US firms and consumers are paying tariff costs, estimated at about $40 billion per year, researchers from the New York Fed Reserve Bank found in a study released on Monday.
As a result of the trade war between the US and China, the US Customs and Border Protection adds as much as 25 percent to the import price. If Chinese firms were to bear the expense, they would have to reduce their prices by as much as 20 percent - a figure that would enable the US distributors, suppliers, or wholesalers to maintain their own rates and earnings.
Import data from June 2018 to September 2019 shows that Chinese import prices fell only 2 percent, according to the Fed study, in line with price declines as global trade slowed in many other nations.
The continued stability of import prices for goods from mainland China means that the tariff must be paid by American entities and consumers, wrote the Fed research team.
The researchers did not estimate how those costs were divided into lower profits or higher consumer prices for US companies. Nevertheless, the research found that China feels the effects of higher tariffs.
Since 2017, China's share of US machinery and electrical equipment exports have decreased by around 2 percentage points and their share of US electronics imports have declined by 6 percentage points.
A huge portion of this share was allocated primarily to machinery in Japan and Europe, and to the electronics and electrical segment in Malaysia, South Korea, Taiwan, and Vietnam, the study found.
The report did not address how much market share US vendors may have earned, or whether some markets charge higher prices than Chinese companies.
The reality that Chinese commodities' dollar prices have not fallen also implies that its exporters have not used the nearly 10 percent drop in China's currency value since the first tariffs were introduced to maintain a competitive advantage, as some US officials say.
The findings added to a long sequence of research that contradicted US President Donald Trump's repeated claim that foreign exporters paid import taxes on thousands of products by up to 25 percent.
