President Donald Trump has repeatedly sought to portray his tariffs on Chinese goods as a major windfall for the U.S. Treasury that has extracted “billions of dollars” from China. But the reality is that tariffs are typically absorbed by consumers in the form of higher prices.
And now a new study shows just how big that markup can be.
When economists at the University of Chicago and the Federal Reserve studied the 2018 duty on washing machines, they found the expected rise in retail prices from foreign manufacturers such as Samsung and LG. Surprisingly, though, these brands also increased dryer prices. Then domestic manufacturers followed suit, simply because they could.
All told, the research shows, U.S. consumers are spending an additional $1.5 billion a year on washers and dryers as a result of the tariffs. That’s an extra $86 for each washing machine and $92 for each dryer, the authors estimate.
And less than 10 percent of that goes to the U.S. Treasury — about $82.2 million — the study showed.
The authors ran their analysis using weekly price data on appliances from market research firm Gap Intelligence. If the tariffs cost $82 million but consumers are paying $1.5 billion, where’s the rest of that money going? Foreign manufacturers are passing some costs on to consumers, while domestic ones are simply pocketing extra profits, according to the study.
“In addition to increased profitability of the domestic manufacturers, one other reason for the gap are cost increases for the foreign manufacturers associated with relocating production to the U.S.,” according to researcher Felix Tintelnot of the University of Chicago.
Domestic manufacturers were able to do this because they don’t have much U.S.-based competition. “The market for washing machines is concentrated, and the domestic manufacturers certainly have market power,” Tintelnot said.
Manufacturers also capitalized on buyer habits when they bumped up the price of dryers, which were not subject to the tariffs. “Many consumers buy these goods in a bundle. Part of the price increase for washers was hidden by increasing the price of dryers,” Tintelnot said.
The tariffs were implemented in January 2018 in response to a complaint from Michigan-based Whirlpool about low-cost competition from companies such as South Korea’s Samsung and LG. At the time, Whirlpool’s chairman, Jeff Fettig, framed the tariffs as a win for workers and consumers. “This announcement caps nearly a decade of litigation and will result in new manufacturing jobs in Ohio, Kentucky, South Carolina and Tennessee,” he said. “This is a victory for American workers and consumers alike.”
But the research released last week shows that U.S. consumers shouldered 125 percent to 225 percent of the costs of the tariffs. And the duty was mostly a dud on the job creation front.
U.S.-based manufacturers added about 1,800 jobs in response to the tariffs, researchers found. But at a total cost to consumers of about $1.5 billion, that works out to approximately $815,000 for every job created.
In other words, had the Trump administration simply left washing machines alone and raised taxes on American consumers by $1.5 billion, it could have poured that money into a federally funded initiative creating nearly 50,000 jobs.
