China-US Trade War

With tariff increases, tariffs on further products and Chinese countermeasures all threatened, we invited our US panel to express their views on the likely impact on American households. We asked the experts whether they agreed or disagreed with the following statements, and, if so, how strongly and with what degree of confidence:

(a) The incidence of the latest round of US import tariffs is likely to fall primarily on American households.

(b) The impact of the tariffs – and any Chinese countermeasures – on US prices and employment is likely to be felt most heavily by lower income groups and regions.

Tariff incidence

Of our 43 experts, 40 participated in this survey. On the first statement, weighted by each expert’s confidence in their response, 20% strongly agreed, 65% agreed, and 14% were uncertain. (5% of the respondents said that they had no opinion.)

Among the short comments that the experts are able to include when they participate in the survey, several pointed to the evidence in two recent studies published by the National Bureau of Economic Research, both of which find that US consumers have borne the brunt of the current trade war. Others referred to research on the impact of US import restrictions against washing machines.

Maurice Obstfeld at Berkeley said: ‘There is some research to this effect, but this will certainly be true if current tariffs are extended over all US imports from China.’ James Stock at Harvard added: ‘Multiple researchers have found roughly full pass-through, see the recent IMF blog post.’

Although he agreed that the incidence of the tariffs would fall primarily on American households, Darrell Duffie at Stanford remarked: ‘The IMF says so. I’m not confident myself. Some loss to consumers offset by government tariff revenues, eventually reducing taxes.’ Robert Shimer at Chicago also expressed caution: ‘Agree in the short run. In the long run, some production will shift away from China.’

David Autor at MIT observed: ‘They will also fall on Chinese consumers and producers. But within the US, much of incidence appears to be on households so far.’ Daron Acemoglu, who responded that he was uncertain, commented: ‘There is too much uncertainty about how much damage these tariffs will do to China and global growth, so impossible to say.’

Larry Samuelson at Yale concluded: ‘Retaliation raises the very real prospect that American business will also bear a significant burden. Typically, no one wins a trade war.’

Distributional effects

The second statement focused on whether the effects of the tariffs and countermeasures would be felt most heavily by lower income groups and regions. Weighted by each expert’s confidence in their response, 15% strongly agreed, 60% agreed, and 25% were uncertain. (5% of the respondents said that they had no opinion.)

Daron Acemoglu at MIT, who agreed with the statement, noted that: ‘Among US households, lower income ones will bear most direct costs. But hard to know how any damage to global growth affects capital income.’ While Jose Scheinkman at Columbia responded that he was uncertain, he also pointed to analysis, which ‘ concludes that tariff increases in 1963- 2014 resulted in more inequality.’ Pete Klenow at Stanford directed us to further evidence of the distributional effects of trade, as did Judith Chevalier at Yale.

Among the other experts who agreed with the statement, Robert Hall at Stanford said: ‘True almost by definition. Prosperous people are better able to handle any economic change.’ Larry Samuelson at Yale concurred: ‘Those with higher incomes will be better able to adjust to the tariff-induced distortions.’ Robert Shimer at Chicago added: ‘Strongly agree for prices. For employment, impact will be on the middle of the distribution.’

David Autor at MIT raised the broader issue of longstanding US concerns about numerous aspects of China’s industrial, technology and trade policies: ‘Tariffs are undesirable but have gotten China’s attention – important given China’s longstanding trade malpractice.’

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh
May 2019