23 May 2019   Leave a comment

The International Monetary Fund (IMF) has released a paper on how the current US-China trade tensions have affected their respective economies. It is still early in the process and it will take some time to determine the consequences even if the tariffs were dropped tomorrow. The IMF states that consumers in both countries will pay the price:

“Consumers in the US and China are unequivocally the losers from trade tensions.  Research by Cavallo, Gopinath, Neiman and Tang, using price data from the Bureau of Labor Statistics on imports from China, finds that tariff revenue collected has been borne almost entirely by US importers. There was almost no change in the (ex-tariff) border prices of imports from China, and a sharp jump in the post-tariff import prices matching the magnitude of the tariff…

“Some of these tariffs have been passed on to US consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins. A further increase in tariffs will likely be similarly passed through to consumers. While the direct effect on inflation may be small, it could lead to broader effects through an increase in the prices of domestic competitors.”

The effects were almost immediate as the graph below suggests:

It is very difficult to predict how the trade war will unfold. The dynamics of the economic conflict are clearly more than purely economic. The political and strategic rivalry between the US and China underpin much of the disagreements. CNBC estimates that the tariffs will cost the average American family about $831 a year.

Posted May 23, 2019 by vferraro1971 in World Politics

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