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How Lopsided Was Trump’s Tit-for-Tat Tariff War? Moody’s Investigates

The U.S.-China tariff war inflicted most of its damage on American businesses and consumer wallets, according to a new report.

Despite pausing new duties, mutual tariffs imposed by both the U.S. under former President Trump and China from 2018 to 2019 remain in place, and now affect more than half of all trade flows between the two countries, Moody’s Investor Service revealed in a report published Monday.

Studies estimate that Chinese exporters absorbed an average of only 7.6 percent of the U.S. tariff rate, with American importers taking the remainder of these duty expenses on the chin. For example, a 20 percent U.S. tariff would reduce Chinese exporters’ prices by 1.5 percent and hike domestic importers prices 18.5 percent, meaning nearly 95 percent of the 20 percent U.S. tariff falls on the country’s imports from the so-called “world’s factory, Moody’s said.

Then there’s the issue of import tariff pass-through, which is also much higher than exchange rate pass-through, Moody’s said, noting that a 20 percent depreciation of the dollar would increase goods prices for U.S. importers about 4 percent compared with a 20 percent tariff rate increasing the importers’ cost more than 18 percent.

U.S. exporters, unlike their Chinese counterparts, lowered the prices of goods affected by foreign retaliatory tariffs by roughly 50 percent, Moody’s said, “carrying a much higher cost burden than foreign importers of goods under US tariffs.”

“One reason why the U.S. exporters absorbed a much higher portion of the cost is their mix of targeted products,” Moody’s said. “U.S. exports under retaliatory tariffs included undifferentiated products, roughly 10 percent of which were agricultural goods. In contrast, the U.S. imports differentiated goods from China, which are affected by U.S. tariffs.”

In American stores, the price effect is more limited, suggesting that retail margins plummeted after tariffs were imposed, according to the report. Studies estimate that a 20 percent tariff rate that increased the price to U.S. importers by around 18 percent would compel U.S. retailers to increase prices about 9 percent to maintain their margins, Moody’s said. However, U.S. retail data indicated a modest retail price bump of around 1 percent.

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Meanwhile, U.S. customs data showed that retailers increased import shipments from China and significantly expanded inventories before the tariffs were implemented, Moody’s noted. Their decision to frontload inventory likely moderated the extent to which retail profit margins shrank.

The tariffs also ignited a shift in supply chains. China’s share of U.S. imports dropped to 18 percent in 2019 from 22 percent in 2018 after the tariffs took effect, “implying that supply chains have moved away from China,” the report said.

Overall, U.S.-China mutual tariffs remain high, despite the moratorium on new tariffs.

“A majority of the cost of tariffs have been passed on to U.S. importers,” Moody’s said. “The effect on import prices could be larger, since importers also raised prices on goods that were not affected by the higher tariffs.

If the tariffs remain in place, pressure on U.S. retailers will likely rise, leading to a greater pass-through to consumer prices.”

On Thursday, a coalition of business organizations released “Imports Work for American Workers,” an economic impact study that found imports support more than 21 million American jobs.

The study focuses on the net impact of imports on U.S. jobs, including statistics on sectors such as retail, apparel, transportation, manufacturing and consumer technology. The study also looks at how imports support jobs in states across the U.S., as well as trade policy initiatives pending before Congress and the administration with the potential to preserve or diminish import-related jobs.

“American fashion brands and retailers rely on American workers for the research, product development and design, logistics, sourcing, sales teams and creativity to make the products that consumers want to wear,” Julia Hughes, president of the U.S. Fashion Industry Association (USFIA), said. “As the report says, ‘Bottom line: no matter where the label places the origin of the apparel product, the fact remains that it likely includes a lot of content from U.S. workers, in America.’”

Jobs supported by imports were a net positive in every U.S. state, the report said. The 10 states accounting for the largest number of import-related jobs were California, Florida, Georgia, Illinois, New Jersey, New York, Ohio, Pennsylvania, Texas and Virginia.

“Imports to the United States are critical to the health of the U.S. economy and to providing diverse, quality goods to American consumers,” Nate Herman, senior vice president of policy at the American Apparel and Footwear Association (AAFA), said. “Imports are also key to the U.S. global value chain, directly employing millions of American workers in product development, sourcing and compliance that turn those designs into product; the transportation and logistics managers, warehouse workers, the truckers who ensure that product makes it to market, and the merchandisers and salespeople who get that product sold.”

The report noted that nearly 8 million of the jobs related to importing were held by minorities and 2.5 million jobs are held by workers represented by unions. The vast majority (96 percent) of companies that import are small or medium-sized businesses.

In addition to USFIA and AAFA, the coalition consisted of the American Chemistry Council, the Consumer Technology Association, the National Foreign Trade Council, the National Retail Federation, the Retail Industry Leaders Association, the U.S. Chamber of Commerce and the U.S. Global Value Chain Coalition.

Th groups commissioned the study, which was prepared by Laura M. Baughman and Dr. Joseph F. Francois of Trade Partnership Worldwide LLC. The study was released during “World Trade Week” as part of “World Trade Month” to highlight the essential role that imports play in the U.S. and global economy.