Donald Trump resurrected a favorite chestnut Friday in his speech in West Palm Beach that China paid "hundreds of billions of dollars" in tariffs that he imposed that were actually paid by Americans.
Trump has often characterized tariffs he enacted during his term in the White House as a kind of bill somehow paid directly by China's Treasury.
In fact, tariffs are paid to the U.S. government by companies importing foreign goods into the country, often American companies, such as Target, which sells products from China. Much, if not all, of the increased costs are typically passed on to the American companies' consumers via higher prices.
Who pays is particulary important now as Trump has begun floating the idea of replacing all American income tax with foreign tariffs that would be paid by U.S. consumers. Tariffs would need to skyrocket to as much as a hyper-inflationary 85% to make up for the loss of $2.5 trillion in income tax revenue.
U.S. importers and their American consumers bore almost the entire burden of tariffs that Trump placed on Chinese goods during his presidency, hiking costs for American companies, according to a report by the bipartisan U.S. International Trade Commission.
"U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers," Mary Amiti, an economist at the Federal Reserve Bank of New York, wrote in a 2020 National Bureau of Economic Research working paper.
"Approximately 100%" of import taxes fell on American buyers, the working paper noted.
A 2019 study by the National Foundation for a American Policy estimated that by the end of that year Trump's tariffs would cost American consumers $259 billion, or just over $2,000 annually per household. And those tariffs are just a fraction of what would be needed to cover the income tax revenue should Trump switch up the tax system.
Passed-on tariff costs are like sales taxes and fall harder on lower income people who pay the same rate at the cash register as the super wealthy.
The only groups benefiting from the elimination of a broad-based income tax and the ratcheting up of tariffs are "those folks at the higher end of the socioeconomic spectrum," Forbes notes.
