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The tariffs so far should not do much damage

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

A trade tariff is a consumer tax by another name. The government gets tax money. The public pays the tax money. The US government, taxing USD 50bn of goods partially made in China, said it wants to make the impact on the consumer as small as possible. If the impact of a consumer tax (or tariff) on the consumer is small, the economic impact of the tariff is small.

The US government is trying to tax things that other countries also sell to the US. The US can then easily use imports from these other countries. If the US taxes Chinese ball bearings, US consumers can buy German ball bearings. However, countries that bought German ball bearings in the past might now start to buy Chinese ball bearings instead. But by making the impact on the US consumer as small as possible, the US government is making the impact on exporters as small as possible.

There are some costs. Changing suppliers takes time and money. US cherry exporters are not likely to find new buyers before their product rots. But the tariffs so far are not a serious economic threat. A second, more dramatic set of tariffs would be a different story.