Fact check: Trump and Vance continue to misdescribe how tariffs work

Washington
CNN
—

Former President Donald Trump and Republican vice presidential candidate Senator JD Vance continue to misdescribe how one of their key policy proposals – the imposition of general tariffs – would work.

Trump has falsely and repeatedly claimed that China – not U.S. importers – is paying the tariffs.

At a rally in Arizona in mid-August, he claimed that his Democratic opponent, Vice President Kamala Harris, was lying when she called his tariff plan a “Trump tax.”

“She's a liar. She's making up nonsense… I'm going to put tariffs on goods from other countries coming into our country, and that has nothing to do with taxes for us. That's a tax on another country,” Trump said.

In September, he repeated this claim in an interview with Fox News: “It's not a tax on the middle class. It's a tax on another country.”

And during a rally in Wisconsin on Saturday, he reiterated: “It's not going to cost you, it's going to cost another country.”

Vance said in late August that as a result of the tariffs imposed by Trump during his presidency, “prices for American citizens have fallen.”

“They went up for the Chinese, but they went down for our people,” Vance added.

But that's not true.

Facts first: Trump and Vance's claims about how tariffs work are false. A tariff is a tax paid by U.S. companies – not other countries – when a foreign-made good arrives at the American border. One of the intended goals of a tariff is to raise the prices of foreign-made goods, and study after study show that tariffs actually increase costs for Americans.

Here's how tariffs work: When the U.S. imposes a tariff on an imported good, the cost of that tariff is usually debited directly from the American buyer's bank account.

“It's safe to call tariffs taxes, because that's exactly what they are,” says Erica York, a senior economist at the right-leaning Tax Foundation.

“There is no way around it. It is a tax on people who buy things from foreign companies,” she added.

Trump has announced that if elected, he would impose tariffs of up to 20 percent on all foreign imports into the United States, as well as additional tariffs of up to 60 percent on all Chinese imports. He also announced that he would impose a “100 percent tariff” on countries that turn away from the U.S. dollar.

Those tariffs would be in addition to those he has imposed on foreign steel and aluminum, washing machines and many Chinese-made goods such as baseball caps, luggage, bicycles, televisions and sneakers. President Joe Biden has left many of the Trump-era tariffs in place.

It is possible that a foreign company may choose to pay the tariffs or lower its prices in order to remain competitive with goods made in the United States that are not affected by the tariffs.

But study after study, including one by the U.S. federal government's bipartisan International Trade Commission, finds that Americans have borne almost the entire cost of Trump's tariffs on Chinese products.

According to U.S. Customs and Border Protection, Americans have so far paid the U.S. Treasury more than $242 billion for tariffs imposed by Trump on imported solar panels, steel and aluminum, and goods made in China.

Once an American importing company has paid the tariffs to the U.S. Treasury, it can decide whether to absorb the costs or pass them on, in whole or in part, to the buyer of its goods – be it a retailer or a consumer.

For example, American shoe retailer Deer Stags, which imports most of its product line from China, has decided to do a bit of both.

It was harder to get customers to pay more for existing models that Deer Stags had long had in its range, President Rick Muskat told CNN, forcing the company to absorb the cost of tariffs on some older models and charge more for some new items.

There are many factors that can influence a retailer's decision to raise prices on some items and not others.

Some of the goods affected by Trump's tariffs saw “sharp price increases,” but overall the impact of the tariffs on retail prices was “rather uneven,” according to a study published in 2019.

“Someone in the United States has to pay this tax,” said Howard Gleckman, a senior fellow at the left-leaning Urban-Brookings Tax Policy Center.

“If it's not consumers, it's businesses. And if businesses bear the cost, workers will ultimately bear some of the cost,” he said.

Tariffs are intended to increase prices – and they do so

Although the cost of tariffs may not be fully passed on from retailers to consumers, there is broad agreement among economists that tariffs do increase some prices for consumers.

For example, the median price of a washing machine in the U.S. rose by about $86 – or nearly 12 percent – after Trump imposed tariffs on foreign-made machines, according to a study published in 2019. The researchers also found that the price of dryers – which were not affected by the tariffs but are typically sold as part of a bundle with washing machines – also rose by 12 percent, or about $92 each.

In total, the price increases cost consumers more than $1.5 billion in the first year the tariffs were introduced. The tariffs expired in 2023.

A study published last year by the U.S. International Trade Commission confirmed that consumer prices for both imported and domestically manufactured washing machines have increased.

One of the purposes of tariffs is to increase the prices of goods produced abroad, making it easier for domestic producers to sell their goods at competitive prices.

A report on the washing machine tariffs that Trump was forced to submit to Congress in 2018 said the tariffs would “provide an incentive for importers to raise their prices.” In fact, the tariffs were imposed in response to Whirlpool's complaint that washing machines from South Korea and Mexico were being sold in the United States for less than they cost to produce.

When asked for evidence that Trump's proposed tariffs would not lead to price increases, his campaign referred CNN to a study by Jeff Ferry, an economist with the Coalition for a Prosperous America, a group that advocates for the interests of American producers and manufacturers.

But Ferry's study actually found that after the introduction of the flat-rate tariffs, prices would rise by 3.26 percent over a six-year period, as a one-time price increase.

His analysis examined the impact of the tariffs in combination with tax cuts financed with tariff revenues. In this scenario, Americans would have to expect lower taxes and higher incomes despite rising prices, his study found.

Ferry told CNN that the traditional economic model used by most economists to analyze the costs of tariffs downplays the potential positive effects – such as increased domestic production and job creation – so he adjusted his model accordingly.

It is true that some American steel companies reopened their plants and created new jobs after Trump imposed tariffs on foreign-made steel. But several studies – including one by the Tax Foundation and another by the US-China Business Council – say that the US economy as a whole has lost jobs because of Trump's tariffs and the retaliatory tariffs other countries have imposed on American goods and agricultural products.

This story has been updated with additional information.