According to a new analysis from the Federal Reserve Bank of New York, tariffs on China could have a bigger and worse impact on the U.S. economy than they did during President Donald Trump’s first term. The reason: direct-to-consumer sales have undermined the intended punitive effects.
There have been seven years of U.S.-imposed tariffs and export restrictions, even though the Biden administration didn’t change many of the Trump impositions. And yet, the result has been that imports from China dropped by much less than official U.S. statistics have reported. New rounds during the second Trump administration could have a bigger impact if imposed differently than in the past.
When the U.S. started the first round of punitive trade actions against China in 2018, the statutory tariff rates on goods coming from China jumped from 2.7% to 17.5%. Biden largely maintained the same rate and Trump has added another 10%, including on goods like consumer electronics previously excluded.
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Another exclusion was for de minimis imports considered too small to bother with. So long as the goods met certain requirements like a value under $800, there were no tariffs.
Government statistics show that imports from China, which had been 21.6% of total U.S. imports in 2018, fell to 13.4% by 2024. The nominal value fell from $505 billion to $439 billion, a drop of $66 billion. Except, there was something strange. China’s data showed that its share of all imports to the U.S. fell by only 2.5 percentage points, or less than a third of the drop according to U.S. data.
Plus, China’s data said that the dollar value of exports to here grew by $91.2 billion to $524 billion. In addition, while the U.S. said that it reduced its trade deficit with China — one of its goals — from $375 billion to $295 billion, China’s numbers showed an increase from $278 billion to $360 billion.
The NY Fed said that the difference would suggest a discrepancy of about $100 billion in imports that the U.S. missed counting.
One explanation could be that China’s statistics were questionable, as some have questioned the veracity of its numbers. However, the analysis suggests a different answer. Using data through 2020, there have been several contributing factors. One was Chinese firms under-invoicing U.S. customers to reduce duties. There were also “fictitious exports from China to take advantage of certain value-added tax rebate benefits within China.”
Finally, there was the de minimis import exemption. The flow of goods directly to U.S. consumers is effectively ignored by U.S. statistics. The Congressional Research Service said that according to the U.S. Customs and Border Protection (CBP), two-thirds of de minimis imports from fiscal year 2018 to 2021 ($228.3 billion) were from mainland China and Hong Kong. That would average $34 billion per fiscal year. However, China only officially reported de minimis exports to the U.S. of about a fifth of the CBP’s estimate.
The NY Fed concluded that large increases in tariffs targeting China helped distort trade statistics, with the growth of direct-to-consumer sales from China to the U.S. allowing a lot of trade to bypass being counted. If the de minimis rule is ended for China and sellers don’t slash their margins, consumers could find themselves paying much higher prices, driving up inflation.
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