Some of the world’s biggest shoemakers are urging U.S. President Donald Trump to end the trade war with China. Firms including Nike and Adidas said consumers and businesses will suffer the effects. Trump said he’s happy to collect tariffs on Chinese merchandise paid by China.
But economists – including Trump’s chief economic advisor Larry Kudlow – are quick to acknowledge that’s not how tariffs work. Gerald Tan explains.
Tariffs are import duties — a tax on items shipped from overseas. Here in the United States, the levies are collected at a point of entry by Customs and Border Protection. And it’s importers who pay the tariffs.
Say a U.S. business buys shoes from China. If a pair costs $100, a 25 percent tariff would now make them $125. The business may choose to absorb this $25. But, in most cases, they’ll just raise the selling price, passing on the extra cost to consumers.
While Chinese manufacturers are not paying the tariffs, they could still be hurt. Higher prices can mean fewer sales. And, it could be cheaper for U.S. importers to do business with countries NOT subject to higher tariffs.
It could also be cheaper to produce locally. That’s one of Donald Trump’s key arguments. He said tariffs will help U.S. goods become more competitive. So, in our example, American shoemakers may benefit.
But, it’s not that straightforward because the raw materials to make shoes – such as textiles, synthetics and foam – might have to be imported as well. And those items could also be subject to higher tariffs.
Now, a coalition of the world’s biggest shoemakers said the tariffs will have a catastrophic effect on all their customers.
Tariffs rarely go unanswered. So, as China slaps higher tariffs on U.S. imports, they will make American goods more expensive and harder to sell in China.