China is picking up the tab on the trade war, says report

American businesses and households will only pay 4.5% more after the US raises tariffs on $250 billion of Chinese goods to 25% in January, concludes a new report by European Union research group EconPol analysed by Bloomberg.

The remaining 20.5% cost will hit the pockets of Chinese producers, the report says, fulfilling one of President Trump’s key objectives when he launched the trade war in the summer.

The study’s authors, Benedikt Zoller-Rydzek and Gabriel Felbermayr, estimate that when the next round of tariffs takes effect, US imports of Chinese goods will drop by a third, cutting the bilateral trade deficit by 17%.

By targeting products with the highest “price elasticity,” Trump is forcing Chinese exporters to cut prices to stop customers fleeing to their competitors, says the report.

“Through its strategic choice of Chinese products, the US government was not only able to minimize the negative effects on US consumers and firms, but also to create substantial net welfare gains in the US,” the authors wrote.