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U.S. Consumers Lose in Trade War, No Matter What

April 8, 2019

The U.S. trade deficit hit set records last year, and that’s not a good thing. While the tariffs were supposed to help reduce the deficit, they’ve only made it worse.

 

A new Princeton study says tariffs hurt U.S. consumers (not our trading partners) to the tune of $1.4 billion per month. In other words, tariffs are only resulting in higher consumer prices. That’s bad for the economy, the market, and the average American.

 

Last month, the U.S. Commerce Department reported the U.S. trade deficit in goods grew to $891.3 billion in 2018, the highest ever recorded.

 

Somewhat less dire are the trade data for services (banking, tourism, higher education, etc.), though the 2018 hit was big there too. The deficit grew 12 percent to $621 billion, the largest margin since 2008.

 

To be fair, the increase was partly due to things outside of President Trump’s control. For example, the economic slowdown and stronger U.S. dollar slowed demand for U.S. goods overseas.

 

And while we mentioned tariffs, we didn’t mention the real tariff problem – domestic producers.

 

In January 2018, there was a 25 percent increase on Chinese-made washing machines. Brands like Samsung, LG and others had to raise prices quite a bit.

 

So, you’d think Americans would simply buy domestic brands because they’d be cheaper – theoretically 25 percent cheaper. Well, domestic washing machine producers used the tariffs as an opportunity to increase their prices too, just not as much as the Chinese brands.

 

All this maneuvering lead to an 11.5 percent increase in overall consumer appliance prices last year.

 

When global firms raise prices because of tariffs or any other reason, domestic ones do it too. It’s a blatant example of how the tariffs are being paid by U.S. consumers, not China.

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