Tariffs

Trump Says China Is Paying for His $16 Billion Tariff Bailout to Farmers. That's Simply Not True.

This might seem like nothing more than a snooze-worthy debate over semantics or economic theory or government P.R. strategies. But it matters a lot.

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For the past year, much of the debate over President Donald Trump's tariffs has been focused, stubbornly, on who is paying for them.

The truth is that Americans are paying. When tariffed goods from China arrive at American ports, the importers must pay a tax of 10 percent (soon to increase to 25 percent). Importers pass that cost along to buyers, who pass it along to distributors, who pass it along…until it gets to you.

This isn't exactly a state secret. It's basic economics. It has been demonstrated to be true not only in theory but in several studies of how Trump's tariffs are affecting the cost of goods. Perhaps most obviously, here is how goods subject to tariffs have increased in price over the past year relative to non-tariff goods:

Nonetheless, this has been subject to debate, because the president has built an alternate reality in which none of these obvious facts are true. In Trump's fantasy world, the tariffs are basically free money pouring into federal coffers from China. He has made this claim in tweet after tweet, and high-ranking administration officials have repeated it in public statements. Treasury Secretary Steve Mnuchin tied himself in knots earlier this week to avoid stating the obvious—that Americans pay for the tariffs—and Trump was reportedly unhappy with Larry Kudlow, one of his senior economic aides, after Kudlow admitted to Fox News that the tariffs are being paid by Americans.

This might seem like nothing more than a snoozeworthy debate over semantics or economic theory or government P.R. strategies. But it matters a lot.

Case in point. In response to American tariffs on Chinese goods, China has effectively cut off purchases of many American farm goods—soybeans, most prominently. Previously, about 40 percent of all American-grown soybeans were exported to China. The loss of that export market has caused a glut of supply, leading prices to fall by as much as 25 percent and leaving farmers in the lurch. So yesterday Trump announced a second round of bailouts for American farmers stung by those retaliatory tariffs. This new round of farm bailouts will cost $16 billion, on top of the $12 billion that was redistributed to farmers last year.

Here's why the debate over who pays for the tariffs matters. Listen to how Trump justified the new round of bailouts on Thursday:

"It all comes from China," he said. "We'll be taking in, over time, hundreds of billions of dollars in tariffs and charges on China, and our farmers will be greatly helped."

The farm bailout is costless, Trump is arguing, because he's taking money from China and giving it to American farmers. That argument could only hold water if China were paying for the tariffs.

To repeat: Americans are paying for the tariffs.

Even if you believe, as some Trump supporters routinely argue, that China will ultimately "pay" for the tariffs in the form of lost American investment and a reduction in long-term growth—which is possible, yes—that does not change the basic fact that the tariff revenue being collected by the federal government today and redistributed to farmers tomorrow is coming out of American wallets.

Again: Americans are paying for the tariffs.

For what it's worth, Trump is wrong about the numbers too. The federal government has collected about $40 billion in tariff revenue since last year—not hundreds of billions of dollars. That means the $28 billion spent bailing out farmers accounts for about 70 percent of all tariff revenue.

It's also obvious political favoritism. Sure, farmers have been hit hard by the trade war, but so have plenty of other industries. How long before they start lining up for their own bailouts?

There are plenty of other questions about the farm bailout program, from the technical to the esoteric. The funding will flow through a New Deal–era agriculture insurance program. Taxpayers for Common Sense, a fiscal watchdog, describes the arrangement as "a backdoor revival and expansion" of a discredited farm subsidy program, "but with a few twists that make it more confusing and more costly."

Or as trade lawyer and Cato Institute scholar Scott Lincicome put it:

Honestly, I can see why this seems repetitive.

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58 responses to “Trump Says China Is Paying for His $16 Billion Tariff Bailout to Farmers. That's Simply Not True.

  1. “When tariffed goods from China arrive at American ports, the importers must pay a tax of 10 percent”

    Ok but why does that mean the importers can’t demand price adjustments from the suppliers? “I have to pay 10% on this, so you are no longer competitive with Vietnam” sort of thing?

    1. Those types of negotiations go on every day, tariffs or not.

      I don’t know much concern China has with being competitive with Vietnam. They have an economy of scale that few small countries can match.

      1. Vietnam and parts of Africa have lower labor costs than China in some industries. They have both been listed as alternatives to China should the economic situatuon become more contentious.

        http://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2018-12-11/vietnam-wields-cheap-wages-export-deals-as-aces-in-trade-war

    2. Yeah and why doesn’t every American get a pony?

      How long will these tariffs last to justify changing a distribution networks? There is a cost associated with that too you know. When all three of my main steel suppliers tell me their price is now 20-25% higher there is not my much I can do in the short run but pay the king’s ransom. What if a product I need is only available from a a few sources. Will the sources unaffected be able to ramp up production or will they just increase there price because you know supply and demand. Are they going to spend the capital needed to increase production based on an executive order that may or may not exist in a few months let alone the years needed to recoup their investment. Nope not much you can do in the short run but bend over and take it up the ass.

      1. Not sure what that has to do with the post you’re replying to, but nice rant.

        1. He was answering the question “why does that mean the importers can’t demand price adjustments from the suppliers?”

          Read it again with that in mind and see if it’s more clear.

    3. You will never get propagandists, like Boehm, to investigate the actual numbers closer.

      There is no way in hell that Boehm will research more in depth about tariffs.

      1. He should just claim the China pays for them. That’s all the intelligent research one needs!

      2. The biggest problem with this articles is that Boehm long ago destroyed his credibility with his long series of anti Trump TDS articles.

        He no longer inspires enough intellectual curiosity to bother to investigate anything he says I just simply don’t believe him anymore.

  2. Trump has said many times that he is not implementing tariffs to protect American companies from lower prices. They’re a temporary punitive measure to eliminate the OTHER countries tariffs. He even said he wwould eliminate these tarrifs if other countries got rid of theirs. At this point there will be some who begin frothing at the mouth banging away at their keyboard to tell me how wrong I am and how Trump is just a “lucky Hitler” and how he’s purposely trying to destroy our economy. Let’s get past that. I don’t care what you think of Trump nor do I care to argue that tariffs are bad, because I agree that they are. What I want to know is what’s the proper libertarian response to other countries’ protectionist trade policies? I know it’s not military action. If it’s not economic sanctions, what’s left? Write a sternly worded letter? Asking pretty please? We did. Many times. Now what?

    1. what’s the proper libertarian response to other countries’ protectionist trade policies?

      Adam Smith answered that question over 100 years ago – if other countries deny their citizens the benefits of free trade that’s no rationale for our government to deny us of the benefits of free trade. If China wants to sell us all the shit in the world and doesn’t buy even a single penny’s worth of stuff from us, well, what are they going to do with all those pieces of paper we’re sending them in return for all the shit they’re sending us?

      1. Exactly. Frederic Bastiat also has a bunch of great essays on the subject that reach the same conclusion — if Country A reduces its trade barriers and Country B refuses to do likewise, the biggest losers on net are the consumers in Country B. The argument that producers in Country A are hurt by the barriers in Country B is only relevant to the extent you think we should use government force to prioritize rewarding inefficient domestic producers (who should find other, better uses for their capital) to the detriment of domestic consumers.

        1. Difference being that our country’s “inefficiency” is generally government imposed, like environmental and safety regulations, or taxation, or not subsidizing domestic industries with the intent of destroying the whole of another country’s industry.
          All of these come into play in the trade imbalances we face.
          Trump is using the weapons he has to try to get to a more even playing field.
          The alternative is to remove all the regulations, eliminate the taxes and subsidize our industries to the same extent as the Chines do for theirs.
          If we just submit, an industry, like the steel one, disappears and, when we need steel, only China, a military and economic foe, will be the only place to get it.

    2. Exactly Frank.

      Trump said this at the G-7 Summit: “No tariffs, no barriers. That’s the way it should be. And no subsidies. I even said, ‘no tariffs’,” the US president said, describing his meetings with fellow Group of Seven leaders as positive “on the need to have fair and reciprocal trade”.

      “The United States has been taken advantage of for decades and decades,” he continued, describing America as a “piggy bank that everyone keeps robbing”.

    3. You’re a fool if you actually believe the purpose of Trump’s tariffs are to get China to open their markets to more free trade. It’s straight up protectionism pure and simple. He wants to protect the industries of the 1950’s that are, by and large, irrelevant in today’s information dominated economies. He is a relic with antiquated protectionist ideas.

      1. Uh huh, sure. We believe you.

      2. + 1 billion and one 🙂

    4. Trump has said many times that he is not implementing tariffs to protect American companies from lower prices.

      Yup. This article is about Trump’s claim that China is paying the tariffs. Which is manifestly untrue.

      Trump has said he would impose tariffs to bring jobs back to the US. He’s said he would do it to punish China for their trade restrictions. He said he would do it to keep American manufacturing competitive (i.e. shield them from lower prices). He’s done it to raise revenue, and also simply because they’re byootiful.

      Trump says a lot of things. The magic is that whether you want to love Trump or hate him, somewhere, at some point, he’s said the right thing to support your argument.

    5. Trump has never articulated an entirely coherent and consistent rationale for anything he’s ever done, so I don’t know why you’re sitting here thinking it’s about retaliation.

      No, in fact – with China, the whole motivation was initially about the trade deficit. We were “losing” billions of dollars every year to China – remember? That’s why this was so god damn urgent. But then the negotiators sat down and it became more about addressing longtime barriers to entry in the Chinese market – e.g., mandatory technology sharing, looser enforcement of IP protections, access – which won him broader support among politicians but muddied the message on tariffs. Now you’re pretending it’s always been about getting countries to lower their own trade barriers.

      Which, you know – no. We have the WTO and a whole international legal regime for raising objections over tariffs and responding in kind. If you cared about Chinese tariffs, you would have stuck to the TPP, not pulled out (and then later ask to be let back in, and rejected), which would have given the U.S. greater leverage against the Chinese than any unilaterally imposed tariffs would. You wouldn’t threaten to wreck an impressive stretch of economic growth in the American economy just to win some pissing match with China.

      In other words, if you wanted to address Chinese barriers to entry, there was a right way to do it. Trump’s message on this has never been consistent, and retaliatory tariffs are not the right tool.

  3. Wealth redistribution is one of the defining characteristics of socialism. Didn’t Trump say we’d “never go socialist” in his last State Of The Union address?

    1. We’re all socialists now. We’re all agreed that rule by Top Men is the best form of rule, we just disagree on who the Top Men should be. The Chocolate Jesus faithful were roundly mocked by the Cheeto Jesus cultists who in turn are mocked by the Loaves and Fishes Jesus followers who insist we shall all be served free lunches on silver platters.

    2. Redistribution from the Chinese to Americans isn’t Socialist, it’s called fighting for your country against anti free trade dumping policies and IP theft.

      1. Redistribution from the Chinese to Americans

        Where is it that this is happening?

  4. I don’t understand why people can’t grok this. It’s like they automatically knee jerk believe every Trump tweet. If he said the moon was made of cheese they would believe it. Nuts.

    If there’s a 25% charge to bring a good into the US, then it’s US consumers who pay that 25% charge. Duh. Double duh. China doesn’t like it because it lowers their sales, but China is NOT paying that charge! US importers are paying it!

    1. Who else is China going to sell to?

      1. +330 million

    2. Gross oversimplification. US consumers pay that charge if they buy affected goods and services. US consumers are incentivized to buy domestic products that are not necessarily as expensive, but were more expensive prior to the tariff. Those purchases of domestic products result in a transfer of surplus (welfare) from Chinese producers and consumers to US producers and consumers. This is common sense: the Chinese firm that buys your soybeans isn’t flying to the US to shop in your neighborhood. They’re shopping in their own neighborhood.

      1. US consumers pay that charge if they buy affected goods and services.

        Yup. Full stop. Who pockets those profits doesn’t matter very much to the people paying those premiums (i.e. Americans).

    3. If there’s a 25% charge to bring a good into the US, then it’s US consumers who pay that 25% charge. Duh.

      Or, don’t pay the 25% charge and pay the whatever % difference to bring it in from Mexico, or Canada, or South Korea, or Japan, or Germany. Duh.

      1. Or, don’t pay the 25% charge and pay the whatever % difference to bring it in from Mexico, or Canada, or South Korea, or Japan, or Germany. Duh.

        Right. That surplus is still being paid by Americans. Not Chinese.

        1. The Chinese losing that sale are paying.

      2. Which—markets being what they are—will include about a 23% upcharge from those competing nations—who are not too stupid to take advantage of the opportunity, gratuitously handed to them by Trump—to compete better, while charging more.

        Ultimately, the purpose of a tariff is to raise the price. Period. The supposed justification is that it enables a domestic producer to compete, even though it could not do so previously, because it had to sell at a higher price. Every price in the market, from every vendor—whether charged the tariff or not—goes up. Then consumers pay for it.

  5. The Impact of Tariffs on Consumer Prices is Clearly Visible

    Yes, the chart shows that the in the time that the 10% tariff on those items has existed the price has varied from the index by 3.5.

    Which would mean: CHINA IS ACTUALLY PAYING 65% OF THE TARIFF WITH LOWER PRICES.

    Or, alternatively, the units are not identified, the scale is exaggerated, the natural variance is not shown, there are no error bars, no correlation is suggested, the items are cherry-picked from a list of hundreds and the chart is meaningless other than as propaganda.

    This is the same as showing at a magnitude 4 earthquake on a magnitude 2 scale and screaming “OH MY GOD ITS THE BIG ONE!”.

    1. Or perhaps the tariff charge is applied to the price paid to the Chinese supplier, not the final retail price? So the tax would only apply to 40-60% of the retail price. And the importer would probably eat the rest because it’s inconvenient to raise prices for what would be hopefully a temporary disruption.

      So the American consumer is paying part and the American business owner is paying the rest.

  6. Keep ignoring the transfer of Chinese consumer and producer surplus to US consumers and producers. Keep simplifying the supply and demand curve to nothing more than a function of price.

  7. Honestly, I can see why this seems repetitive.

    Poor Boehm. He keeps writing crappy articles because nobody else will hire him to write crappy articles.

    I have been assured that Illegals pay more in US taxes than they receive, so Mexicans are paying for the border wall.

    How do customers pay the tariffs, Boehm, if the customers never buy the Chinese products but they were shipped to the USA anyway?

    Boehm and his fellow propagandists will never determine how many tariffed Chinese products are sent to the USA and actually purchased compared to products sent to the USA and sit on shelves unsold.

    These are two examples of why what people like Boehm say, is dogshit.

    1. Compared to literally every post you’ve ever written as being examples of dipshittery.

      I’d say you’re the last person on the planet who has any standing to insult someone else’s reputation.

  8. POO* lied again keeps lying?
    Well blow me down!

    *President Orange Obstruction

  9. There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them.”

    Adam Smith

    The question here is who is retaliating to high duties. I think we are paying the price and are in the midst of a needless war waged by insidious and crafty animals.

  10. That’s Simply Not True

    That’s also irrelevant.

  11. Pres. Trump, like an successful peddler of shoddy goods, knows his target audience well. He is not aiming at the properly educated, the accomplished, or the economics professionals. He is courting the superstitious slack-jaws, the uneducated and intolerant, the depleted human residue that remains in our shambling backwaters after generations of bright flight.

    Most Trump supporters couldn’t find China on a map, define the term tariff, or discuss economic fundamentals intelligently if their desolate lives depended upon it. But they’ll cheer for tariffs, proclaim victory against China, and continue to believe that Donald J. Trump is going to enable unskilled and half-educated rural white males to prosper and to do so at the expense of the successful “elites” Trump fans resent.

    1. I have come to the conclusion that Kirkland is in actuality a jar containing the gall bladders of failed dictators that has somehow gained sentience. Nothing else explains the particular combination of bile, bitterness towards the working class, and utter certainty of its own importance cloaked in Progressive rhetoric worthy of an Antifa rally against a statue of George Washington.

      I picture it: holed up in the basement of an abandoned hospital, having gained access to the internet through an analog phone line that was never turned off, a single unit IBM computer with an 11″ monochrome monitor from 1987, and a big stack of those floppy disks with 40 free hours of America On-Line service that we all threw away. Always waiting for its time to once again bask in the light of day.

      1. The Rev is a performance artist dedicated to his craft. He’s a parody account who never once breaks character across multiple websites. I suppose it’s possible that the Rev and OBL are the same person, but their voices are far too different for me to believe that they aren’t just like-minded individuals polishing their one-joke routines. (And I am in no way denigrating their work, it takes the kind of commitment to the joke that few of us possess and that’s to be admired.)

      2. I considered at one point that the Rev was actually a corn stalk masquerading as an intellectual.

    2. And yet you did not know where China was, you did not define the term tariff, or even define what you mean by economic fundamentals – your words. Your post is what I expect from a narcissistic troll.

  12. Wait until Trump starts saying he’s paying the tariffs out of his own pocket.

    1. Uh huh, sure. Tell us more.

    2. That’s just crazy talk. He’ll use his foundation! Wait, he was forced to shut that down because of illegal self-dealing. I suggest he calls in to Fox & Friends and explains to the trained seals that Mexico will pay for his big, beautiful tariffs. The trained seals will clap and bark and post comments at Reason.

  13. Worth it. Fuck China.

  14. Speaking of nations with inscrutable, slant-eyed citizens…

    For Trump, a ‘very big event’ in Japan that he struggles to explain

    In President Trump’s telling, the “very big event” in Japan is something he just can’t miss. How big? “One hundred times bigger” than the Super Bowl, Trump boasted during an Oval Office meeting with Japanese Prime Minister Shinzo Abe last month. “Something that hasn’t happened in over 200 years,” the president marveled this week, as he prepared to leave Washington for Tokyo on Friday.

    What is happening? Trump hasn’t exactly said. He noted in remarks on Thursday that it has something to do with the emperor, but he hasn’t offered any details. “It’s a very big thing,” he assured reporters. “I said, ‘I’ll be there. If that’s the case, I’ll be there,’ ” Trump said. He added: “Isn’t it 130-some-odd years that it’s happened? It’s a very unusual thing.”

    During an impromptu question-and-answer session with reporters in the Roosevelt Room on Thursday, Trump was asked whether the United States and Japan could reach a trade deal to avoid tariffs on Japanese automobiles that the president has threatened to enact in six months.

    Instead of responding directly, Trump pivoted to boast again about the “very big thing going on with the emperor” and then, perhaps, revealed the real reason he is so enthusiastic.

    “I am the guest, meaning the United States is the guest, but Prime Minister Abe said to me, very specifically, ‘You are the guest of honor. There’s only one guest of honor,’ ” Trump said. “I represent the country. Of all the countries in the world, I’m the guest of honor at the biggest event they’ve had in over 200 years.”

    The most satisfying POO* is gotten through flattery.
    https://www.washingtonpost.com/politics/for-trump-a-very-big-event-in-japan-that-he-struggles-to-explain/2019/05/24/5ae84d74-7e2d-11e9-a5b3-34f3edf1351e_story.html?utm_term=.e1a107921102

    *President Orange Obstruction

  15. So, obviously some of the cost of tariffs is being passed along to the consumer. But is it really all? If importers increase costs by the full tariff, they are going to lose business to competitors (no doubt they have lost some). I’d have thought they had to eat some portion of the tariff. Your graph shows goods subject to tariff increasing, what, 3%? Hasn’t the average tariff increases quite a bit more than that? So I’d think China is paying in two ways, by paying SOME chunk of the tariffs and by losing some business. Obviously this is true to an extent – we know China isn’t neutral on the U.S. raising tariffs, they’re quite unhappy.

    Likewise, is money going to tariffs really LOST? I mean, it DOES go to our government. You may have doubts about their efficiency (as do I). You may think they’re playing favorites, such as with farmers (so do I). But we don’t get ZERO return on those tariffs.

    Finally, is Trump’s goal really not worth fighting for at all? Yeah, he’s no great economic mind. But almost everyone agrees that China’s policies (on tariffs, on IP, on currency, etc.) hurt its trading partners and ought to be reformed. Maybe you don’t think it’s worth this trade war (not sure I do either), but it’s not worth nothing. And at some point, the unlevel playing field has to be leveled, or they have all of our IP and their business crowd ours out. Is now the time to take a painful stand?

    I see your points. But please try to present both sides.

  16. […] Eric Boehm unmasks yet more Trumpian fallacies about tariffs. […]

  17. Not clear in this discussion is how Trump gets to direct billions to farmers. Does Trump have some constitutional power to end-run the House of Representatives on appropriations? Has Congress already passed some law which says Trump can spend tariff revenue however he wants?

    Even if that were true, couldn’t the House just say, “Go ahead, Mr. President, bribe the people you are hurting to sit and take it. But expect appropriations for other programs you like to be cut back dollar-for-dollar. Thirty billion for farmers is fine—because of your policies the farmers have an emergency need. That will cost you one aircraft carrier battle group.”

    1. Update after checking. Apparently the term today is “strike group.” And to offset $30 billion, more than one strike group will have to be sacrificed.

  18. […] Trump Says China Is Paying for His $16 Billion Tariff Bailout to Farmers. That’s Simply Not Tr… by Eric Boehm […]

  19. […] Trump Says China Is Paying for His $16 Billion Tariff Bailout to Farmers. That’s Simply Not Tr… by Eric Boehm […]

  20. […] Trump Says China Is Paying for His $16 Billion Tariff Bailout to Farmers. That’s Simply Not True by Eric Boehm […]

  21. […] [3] Eric Boehm, “Trump Says China Is Paying for His $16 Billion Tariff Bailout to Farmers. That’s Simply Not True,” May 24, 2019, https://reason.com/2019/05/24/trump-says-16-billion-tariff-bailout-to-farmers-is-paid-by-china-thats…. […]

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