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How Are Tariffs Imposed?

May 10, 2019
Originally published on May 10, 2019 4:57 pm
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ARI SHAPIRO, HOST:

Early this morning, President Trump was on Twitter claiming falsely that the tariffs on Chinese imports are being paid by China. He wrote, tariffs are now being paid to the United States by China, of 25%. That is not how this actually works. So to help us understand the nuts and bolts of how tariffs are paid, we are joined by Howard Gleckman. He's a senior fellow at the Urban-Brookings Tax Policy Center. Welcome.

HOWARD GLECKMAN: Hi.

SHAPIRO: OK. So imagine that a container full of Chinese-made bicycle parts leaves China tomorrow and takes a couple weeks across the ocean and arrives at, let's say, a port in Los Angeles. What happens then with these tariffs?

GLECKMAN: So the one thing that doesn't happen is the Chinese government doesn't pay the tariff. What does happen is the importer has to pay for those goods at the port of entry, those goods are then released, and the importer can then do whatever he does with them - keep them himself or sell them to another user in the United States. But essentially, that importer is required to pay a customs duty at the port of entry before those goods are released to him.

SHAPIRO: OK. So the American importer is writing the check to the U.S. government. Is that actually money going into the Treasury's coffer?

GLECKMAN: Yes, it is, absolutely.

SHAPIRO: So if the American company buying the Chinese goods has to pay the tariff, can they turn to the Chinese supplier and say, look, I'm paying 25% extra for your bicycle parts - give me a discount on the purchase price?

GLECKMAN: They can try. It depends on what the product is, and it depends if there is a competitive product out there that the importer can substitute for the Chinese product. In some cases, they can, and in some cases, they can't.

SHAPIRO: Earlier today on "Morning Edition," we heard from a man who owns a furniture business. His name is Jim Kittle. He said that when the tariffs were 10%, he and his Chinese supplier split the added costs. But that won't work now.

(SOUNDBITE OF ARCHIVED BROADCAST)

JIM KITTLE: The vendor is no longer going to be able to take anymore. The retailer is not going to be able to absorb it because right now retailers are, at best, marginally profitable, and furniture is no different.

SHAPIRO: How do you respond to that? What do you expect to happen?

GLECKMAN: Well, I think that's right. So I think what the Chinese company may do is look for a buyer somewhere else; maybe they'll sell that furniture to a buyer in Europe or in Singapore. They can find other buyers, too. Remember, we're not the only consumer of Chinese goods in the world. We're a very big consumer of Chinese goods, but we're not the only consumer of Chinese goods. Where this also gets complicated is we've been talking about things simple, like bicycle parts or furniture, but these tariffs would also be imposed on what are called intermediate goods, the parts that go into manufacturing of bigger products.

And there you have these supply chains which are very complicated. You may have a particular screw or a particular other piece of equipment that really only fits a larger piece of equipment that comes from China, and it may take months or more for the manufacturer in the United States to find another supplier for that part. So when you're talking about pieces of equipment or other materials that are in a supply chain, it gets even more complicated, much more difficult for the American manufacturer to find a replacement for that Chinese good.

SHAPIRO: The president has threatened to impose more tariffs on goods, like shoes and clothing, that might hit consumers a little more directly. Would you expect to see companies right now stocking up on those kinds of items to try to beat the higher cost?

GLECKMAN: The fact that the president has been threatening these tariffs has been known for months and months, and I suspect there are probably some American retailers that knew this was coming and probably have been stocking up.

SHAPIRO: Howard Gleckman is a senior fellow at the Urban-Brookings Tax Policy Center. Thanks for joining us today.

GLECKMAN: It's a pleasure, Ari. Anytime.

(SOUNDBITE OF SLOWHY'S "REAL HAPPY LIFE") Transcript provided by NPR, Copyright NPR.