HBS Working Knowledge | June 26, 2019
“We are the ‘piggy bank’ that everyone wants to take advantage of,” President Donald Trump told his 61 million Twitter followers in May, days after he hiked tariffs on $200 billion worth of Chinese goods. “NO MORE!””
But research by Harvard Business School’s Alberto F. Cavallo suggests that American companies—and more recently, consumers—are bearing the brunt of the trade war with China, whose government has been retaliating with its own import tax increases. US exporters, particularly farmers selling commodities in competitive global markets, have had to significantly cut their prices, while Chinese exporters have not reduced the prices of the goods they sell to US importers.
“This nearly complete pass-through of tariffs to the total price paid by importers suggests the tariff incidence has fallen largely on the US,” Cavallo and his research colleagues said in the working paper, Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy (pdf).
The US-China trade tensions, which have been roiling global stock markets, will likely dominate conversations when leaders from Group of 20 nations gather on Friday for a two-day meeting in Osaka, Japan. Trump said on Twitter last week that he would have an “extended meeting” with President Xi Jinping of China at the summit, a welcome development for rattled investors and other world leaders.