Trump’s tariffs led to billions of losses, Fed research shows, Economy News & Top Stories
WASHINGTON (BLOOMBERG) – Starting in early last year, a very unlikely anomaly started appearing in global trade data: Beijing said it was selling more goods to the United States than America reported buying from China.
That was a reversal of the normal pattern and a product of the two nations’ trade war – but not an intended consequence. Instead, it was likely due to misreporting by both exporters in China and importers in the US, according to new research from Federal Reserve economists.
Companies in the US could pay less in tariffs if they under-reported the value of goods imported from China, while firms in China could get higher value-added tax (VAT) rebates if they over-reported the value of exports, the economists argue.
Usually, the import value of a good when it enters one country should be higher than the value of the same good when it leaves another nation. That is because import prices usually include the cost of freight and insurance, while exports do not.
Until February last year, this was the case with bilateral US-China trade – US goods imports from China were always valued as worth more than China’s exports to the US. However, since March the opposite has been reported for almost every month.
The report underscores the difficulty in winning trade wars with economic barriers like tariffs, contrary to former president Donald Trump’s assertion that victory would be easy. The distortions also bolster arguments against Trump administration officials who claim American tariffs were fundamentally rebalancing the skewed trading relationship between the world’s two largest economies where the US has long maintained a wide deficit.
The misreporting by both American and Chinese companies explains most of the contraction in the US-China trade deficit since the two sides started imposing tariffs on each other in 2018, Fed economists Hunter Clark and Anna Wong argue.
The trade balance was US$88 billion (S$118 billion) smaller last year than it was in 2017, according to their calculation, with US$55 billion of that shortfall due to evasion of US tariffs, US$12 billion due to misreporting to get higher Chinese VAT rebates and the remaining US$20 billion was unexplained.
“The trade conflict had a much smaller impact on the US bilateral trade balance with China than first meets the eye when looking at US data,” they wrote. The under-reporting of US imports also means about US$10 billion in tariff revenue may have been lost, they estimated.
China’s latest trade figures also show it has made slow progress in meeting the purchase targets agreed with the US under the trade deal. Since January last year, China’s imports of manufactured, agricultural and energy goods stood at almost US$157 billion, or about 41 per cent of the targets agreed by the two nations.