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Katheryn Russ, Econofact
Katheryn Russ, Econofact
Editor’s note: This analysis is being published in collaboration with EconoFact, a nonpartisan economic publication.
Even if the mini trade deal made between the U.S. and China on Friday provides some relief to farmers who export to China, the tariffs that are already in place and the threat of a renewed escalation present enormous costs to Americans.
Economists from academia and the policy sphere have used a variety of methods to estimate the impact of new tariffs implemented in 2018 and 2019 on U.S. firms and households. Variation across emerging estimates reflects more than measurement issues. The costs imposed by tariffs go beyond the direct dollar-price increases resulting from these new taxes on targeted goods. There are efficiency costs and uncertainty about their future path.
Tariffs also may benefit protected sectors of the economy and are a source of government revenue. The evolving range of estimates depends on which costs and benefits are taken into account. Estimates of the average gross annual cost of tariffs levied in 2018 through the first half of 2019 tend toward $800 per household. Estimates of net costs vary more widely. When setting aside policy uncertainty, they vary from about $60 to $500.
(Click here for a larger version of the table with a complete listing of studies mentioned, their estimates, and the different factors each study takes into account.)
The latest studies suggest the combination of new tariffs and increased trade policy uncertainty create a substantial drag on the economy as a whole: net losses projected for 2020 are between about $500 and $1700 per household.
Costs imposed by tariffs go beyond direct dollar-price increases on targeted goods. Evolving estimates range in value depending on what they take into account.
Economists across academic and policymaking institutions have produced a number of different estimates of the impact that changes in trade policy since the start of 2018 have had on the U.S. economy. The lowest estimates involve only the direct incidence of the new taxes on consumers.
The highest estimates include the direct costs of the tariffs, costs related to distortions the tariffs generate in firm and household behavior, and the drag on firm activity that increased uncertainty about trade policy has brought.
Taking the full range of estimates into account, the new trade policy regime implemented in 2018 through June 2019 is likely to result in an average cost per U.S. household between $500 and $1,700 a year.
Katheryn (Kadee) Russ is an economic professor at the University of California, Davis.