The U.S. trade deficit with China drops by 17 percent: EconPol Europe
Contrary to the mainstream media reporting, President Donald Trump may be winning the trade war with China, according to a leading European think tank.
The tariffs placed by the Trump administration could narrow the U.S. trade deficit with China by 17 percent, a recent paper published by Munich-based EocnPol Europe projects.
“The US import tariffs will increase the prices of the affected Chinese products in the United States and decrease the profit margin of Chinese exporters,” the fifteen page report says. “This might force some Chinese firms to stop exporting to the US, or even force them completely out of the market.”
The tariffs slapped on Chinese goods by President Trump could lead to a net gain of $18.4 billion for the government, the document estimates.
The report titled “Who is Paying for the Trade War with China?” shows the changing trade dynamics between the two countries:
[T]he greatest share of the tariff burden falls not on American consumers or firms, but on Chinese exporters. We calibrate a simple economic model and find that a 25 percentage point increase in tariffs raises US consumer prices on all affected Chinese products by only 4.5% on average, while the producer price of Chinese firms declines by 20.5%. The US government has strategically levied import duties on goods with high import elasticities, which transfers a great share of the tariff burden on to Chinese exporters. Chinese firms pay approximately 75% of the tariff burden and the tariffs decrease Chinese exports of affected goods to the United States by around 37%. This implies that the bilateral trade deficit between the US and China drops by 17%.
German newspaper Die Welt backed up the findings published by EconPol report by citing the economic data published by the IFO economic research institute:
“Germany’s IFO Institute sees China in a tough spot. The IFO researchers concluded in a study that the countries in the Far East will be most affected by the trade war. “Tariffs are just another form of expense which is distributed between the foreign manufacturer and the consumers at home,” economist Gabriel Felbermayr explained.
And three fourth of the U.S. tariff on Chinese goods will be borne by the Chinese manufacturers. Americans, on the other hand, will gain considerable revenue. “The problem with protectionism is that it can actually have economic benefits for the United States,” Felbermayr said.
These are outrageous predictions that British and German [economists] are making: around the world, even in the U.S., economists and company bosses were long convinced of the disastrous results of Trump’s tariffs. And now economists say that President’s tough trade policy and his much despised “America First” can have positive impact.
The U.S. customs revenues are going to rise by 22,5 billion, IFO Institute estimates. An amount that can later be redistributed [over to consumers]. Economists project a net gain of $18,4 billion. They see a 37 percent drop in the exports goods impacted [by the tariff hike]. In terms of trade deficit between China and the U.S., this will amount to a reduction of 17 percent. [Translation by the author]
In late September, President Trump had imposed tariffs on $250 billion worth of Chinese goods, alleging Beijing of engaging in unfair trade practices. The White House has threatened to raise tariffs on additional $267 billion worth of Chinese imports.
In recent weeks, President Trump has raised the prospect of a negotiated settlement with China. “China wants to make a deal, they sent a list of things they are willing to do, which is a large list, and it is just not acceptable to me yet. But at some point I think that we are doing extremely well with respect to China,” he said on Friday.
A deal could be reached later this month when President Trump comes face to face with the Chinese leader Xi Jinping at the G20 summit in Argentina, Chinese media suggests. Beijing is dispatching a trade negotiation team to Buenos Aires, South China Morning Post reported on Tuesday.
If the projections made by Germany’s EocnPol Europe, a state-funded institution, are to be believed, President Trump — unlike his predecessor — will be negotiating with his Chinese counterpart from a position of strength. As President Ronald Reagan forced the Soviet Union to the negotiating table with his strategy of “Peace through strength,” President Trump’s “America First” policy has succeeded in making Beijing reconsider its predatory trade practices.
What a difference a presidential election makes!
Video: ‘China wants to make a deal on trade,’ Trump
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