Normal trade math does not add up. US imports and China exports are not in sync. 
China’s Bermuda Triangle
UBS comments on China’s Bermuda Triangle (Download)
When looking at Sino-US trade, the value of China’s exports to the US should be less than the value of US imports from China. This is true for any bilateral trade relationship. Export numbers record the value of the goods exported when sitting on a ship about to leave a country. Import numbers record the value of goods when they arrive in a country. In between the two is the cost of transporting and insuring those goods, so the import values will automatically be higher than the export values. Critically, import values do not include any trade taxes—those are paid by domestic consumers after the goods have arrived.
If we look at China’s exports to Europe, or US exports to China, this is exactly what we find. The value of exports and imports move in sync, with the value of imports somewhat higher than the value of exports.
This used to be true for China’s exports to the United States. But in recent years, China’s customs data has shown China to be exporting more than the US is importing. The shift is not small—China claims to export almost 19% more than the US claims to be importing. Even that large gap understates the problem—China’s export values should be about 15% lower than US import values, given transport costs. Therefore, this change in the data either overstates China’s exports or understates US imports by over 30%.
Unless 30% of ships are disappearing in some kind of midPacific equivalent of the Bermuda triangle, this suggests mismeasurement of the data. This anomaly is something that only happens with China’s exports to the US (not with US exports to China, or China’s trade with other countries). It also does not apply evenly across all sectors— furniture, machinery and equipment, electrical equipment, and plastics are areas where significant anomalies take place.
Tariffs do not directly affect the values measured by the data, because US consumers pay trade taxes on the value of imported goods (i.e., after the import data cited here has been calculated). However, rerouting supply chains in response to this might have led to this anomaly. Goods from China that are routed via Vietnam or Mexico (for example) may be classed as exports to the US by China, but as imports from Vietnam or Mexico by the US.
Apparent Supply Rerouting
When considering the impact of the Trump trade taxes, it is the US data that should be used. Tariffs will be paid by US consumers and calculated off US import data, so what matters is not what China thinks it is exporting to the US but what the US thinks it is importing from China. If the US believes the goods come from somewhere else, they will not be impacted by China-specific tariffs.
The above paragraph strikes me as wrong. But it depends on whether you want to measure tariffs collected or Trump’s effort to collect them.
I asked Brad Setser, senior fellow for international economics at the Council on Foreign Relations, and Director of International Economics, for the United States Department of the Treasury to comment.
Brad Setser Comments
- Chinese exports started exceeding US imports only in those categories with tariffs, and only after the tariffs were imposed — which provides the basic answer.
- We know the US isn’t counting 1 billion small value (de minimis) packages in the trade data, and that alone is at least $60b in missing US imports that appear in the Chinese trade data. There are other sorts of tariff avoidance/ circumvention as well.
- So right now the Chinese export data is better guide to US China trade than the US import data — which is why I now emphasize the $500b or so China reports in exports to US rather than the $400b or so the US reports in imports
This appears to be an amusing case of China cleverly avoiding US tariffs but not clever enough to hide it better.
US Trade Deficit
The above chart shows the US trade deficit with China improved but at the expense of increased deficit elsewhere.
It’s now unclear if the deficit with China really improved at all. In practice the deficit might really be $100 billion larger than I show.
Whereas Setser says use China export data, UBS says use US data. It depends on what your angle is.
Do you want an accurate estimate of imports from China, or do you want tariff collection numbers that match incorrect US import measurements?
Who Pays Tariffs?
Trump says China pays the tariff. That’s ridiculous.
To the extent tariffs are collected at all (not avoided by rerouting through Vietnam or Mexico etc.), US consumers or importers pay the tariffs.
Tariffs are a tax.
The combined impact of rerouting trade, strengthening of the dollar, and the genuine buying of goods from countries other than China negated much of the damage of the tariffs.
Tariff Policy
The Congressional Research Service comments on U.S. Tariff Policy.
Who Makes U.S. Tariff Policy?
The Constitution grants Congress the power to lay and collect duties and to regulate commerce with foreign nations. Because tariffs are no longer a major element of domestic tax policy, they have instead become an instrument of U.S. foreign policy and trade promotion. As such, Congress often works with the President to set tariff policy by authorizing the President to negotiate trade agreements and to adjust tariffs in certain circumstances.
What Has U.S. Tariff Policy Been?
Over the past 70 years, tariffs have never accounted for much more than 2% of total federal revenue. In FY2024, for example, CBP collected $77 billion in tariffs, accounting for approximately 1.57% of total federal revenue. Instead, the United States has generally used its tariff policy to encourage global trade liberalization and pursue broader foreign policy goals. Since 1934, the United States has reduced or eliminated many tariffs as part of bilateral and multilateral trade agreements. By supporting the creation of the GATT and the WTO, the United States Congress sought to reduce tariff rates globally within a rules-based trading system. Roughly 70% of all products enter the United States duty free.
Issues for Congress
For more than 80 years, Congress has delegated extensive tariff-setting authority to the President, who was more insulated from domestic protectionist pressures than individual Members of Congress. This delegation led to an overall decline in global tariff rates. However, it has meant that the U.S. pursuit of a low-tariff, rules-based global trading system has been the product of executive discretion. While Congress has set negotiating goals, it has relied on Presidential leadership to achieve those goals. The Trump Administration was openly critical of low-tariff policies and made extensive use of authorities delegated to the President to increase tariffs on certain goods. As a result, duties paid on U.S. imports doubled from FY2015 to FY2020 from approximately $37 billion to $74 billion. The Biden Administration has maintained many of those policies with CBP collecting $77 billion in FY2024. Some Members have supported the increased use of tariffs; however, others have expressed concern about the economic impact of increasing tariffs. Some Members and committees have also expressed concerns about the President raising tariffs without congressional approval.
Related Posts
September 26, 2024: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
If Trump imposed 60 percent tariffs on China, I believe all trade with China would cease.
The US would not collect a cent on those tariffs. That’s the good side actually because would be US consumers who paid the tax.
November 22, 2024: Trump’s Proposed Tariffs Are a Tax on Consumers, Primarily the Poor
For the poorest fifth of Americans, who will have incomes of less than $29,000 in 2026, the tariffs will impose a tax increase equal to 5.7 percent of their income that year.
November 25, 2024: Trump Threatens 25 Percent Tariffs on Mexico and Canada on Day One
Trump says he will unilaterally scrap his own allegedly “Best in History” USMCA trade deal and impose huge tariff hikes on our top two trading partners. Is this constitutional?
Either this is a Bluff, or Trump is a fool. It could be both. But Trump would have to break his own “Best Deal in History” to do what he says.
The deal renews in June of 2026. I believe Trump will wait until then to do anything drastic, if even then.
There would be serious ramifications to break a trade deal that Trump himself negotiated. No one could possibly believe any deal he negotiated.
How Much Revenue Can Trump Realistically Bring in From Tariffs?
Given that Trump, AKA Tariff Man, is going to hike tariffs, the key question is How Much Revenue Can Trump Realistically Bring in From Tariffs?
There are many moving parts to this question including Congress, retaliations, and consumer impacts.
The Tax foundation provides an estimate. Mine is lower because Trump is not going to unilaterally break USMCA.
Click on the above link for details.
Funny how it all started just before the CCPandemic hoax.
I am looking forward to what Trump will do on energy.
Trump has vowed to declare a national energy emergency as soon as he takes office Monday, months after promising voters that he would cut their electric and gasoline prices in half in the first year of his administration.
“To achieve this rapid reduction in energy costs, I will declare a national emergency to allow us to dramatically increase energy production, generation and supply,” Trump said in Potterville, Michigan last August. “Starting on day one, I will approve new drilling, new pipelines, new refineries, new power plants, new reactors and we will slash the red tape.”
The president-elect reiterated as recently as Dec. 22 his intention to declare a national emergency on energy on the first day of his administration. He vowed to issue a series of executive orders to reverse Biden administration policies on natural gas exports, drilling and emissions standards.
Trump plans to establish a National Energy Council led by North Dakota Gov. Doug Burgum, his pick to lead the Department of the Interior. Burgum said during a Senate hearing on his nomination this week that he expects the council to be established through an executive order.
I encourage everyone to write down, if you can, the price you pay for gasoline, diesel, fuel oil, natural gas and electricity tomorrow. Repeat this every month this year to follow Trump’s progress. It should be an interesting exercise.
I wonder if he will put tariffs on imported energy right away? That might raise prices in the short term.
Given that sanctions against Russia in sping 2022 triggered global GDP decline and seizing up of world trade, you might want to look eastwards for the answers.
Energy costs due to sanctions against Russia for America’s illegal proxy war in The Ukraine, have put pressure on developing countries all over the place, and European and EU countries too, contributing the the DXY spike and the strength of the USD against other currencies. The ending of hostilities with Russia and futile attempts to reboot global trade whilst China is imploding might have more leverage on oil prices. Prices decline as trade does, as demand does, as global deflation spreads.
Axioms (contra Trump ‘thinking’)
Wouldn’t the impact depend on demand elasticity for the specific good being tariffed? If Chinese-made product can be obtained elsewhere at a comparable price, then the Chinese producer will need to lower its price, right?
If we are understating imports doesn’t that imply we are also overstating gdp? You are only talking about a few tenths of a percent, but its not nothing.
“This appears to be an amusing case of China cleverly avoiding US tariffs but not clever enough to hide it better.”
You use the term “China” to make it sound as if everyone (government, manufacturers, workers, etc.) in China acts in concert just like an ant colony or beehive. It could be that manufacturers and other exporters are declaring the cargo correctly to the Chinese government and then route it through other countries to avoid any tariffs. This is exactly what US businesses would do if the situation was reversed. If hiding exports was official Chinese policy, I am certain that they are smart enough to just falsify the information.
China cannot hurt the US very much on trade. Our exports are fungible, like food and commodities. Fungible exports cannot be banned or tariffed effectively. If China bought their food from another country, we would sell our food to the seller country. If they tried to squeeze us out, there would be oversupply and the selling country would be punished unless China overpaid (which is a tax) for its imports.
The poorest do not work (perhaps old or dependent). The tariff costs can be easily mitigated for them. For the relevant working class, the wage increases will be much greater than the tariff tax. So the working class wins. The elite lose. The Chinese lose. And if you understand economics (e.g. Kalecki’s profit equation and why I would bring this up), you know that the elite are collaborating with the Chinese so they can get low tax rates and entitlements. Of course the elite are going to be against it. They just want to get rich off of China and let the working class deal with the consequences.
Speaking of China…
EcoHealth Alliance, the nonprofit that Dr. Anthony Fauci used to offshore risky gain-of-function research to China 6 months before the Obama administration banned it, has finally been cut off by the US Government – along with its former president, Peter Daszak, for a period of five years following scrutiny over its work in Wuhan, China ahead of the Covid-19 pandemic.
Dr. Anthony Fauci ‘prompted’ the fabrication of a paper by a cadre of scientists aimed at disproving the Covid-19 lab-leak theory.
According to US Right to Know, emails obtained in 2020 revealed that a statement in The Lancet authored by 27 prominent public health scientists condemning “conspiracy theories suggesting that COVID-19 does not have a natural origin” was organized by employees of EcoHealth Alliance, a non-profit group that has received millions of dollars of U.S. taxpayer funding to genetically manipulate coronaviruses with scientists at the Wuhan Institute of Virology.
After Sars-CoV-2 broke out down the street from the Wuhan Institute of Virology, Fauci engaged in a massive campaign to deny the possibility of a lab-leak from the lab he funded, and instead pin the blame on a yet-to-be discovered zoonotic intermediary species.
https://usrtk.org/covid-19-origins/timeline-the-proximal-origin-of-sars-cov-2/
I can’t believe that I read Mish’s 10th article this year on Trump tariffs, and it’s only the 18th of January.
Fortunately, we’re less than 48 hours away from finding out about Trump’s big border, deportations, tax cuts, tariffs, & crypto currency strategies.
Did anyone buy $Trump crypto Friday night?
I bought a bunch, to get around the gift tax.
Well maybe the “poor” in the USA shouldn’t be buying cheap crap from China in the first place.
By increasing the the price of cheap crap from China maybe people won’t buy it. If they don’t buy it no tax is paid and they experience zero inflation.
If in fact China is sending the US some $60 billion in small parcels then the US needs to do what Australia did: tax them.
I can’t remember what year it was, but several years ago we were able to buy things under a certain amount on platforms such as eBay from international sellers and pay zero tax on them.
Lots of businesses in Australia started yelling about unfair competition and all that sort of stuff so they changed the system to force the big platforms to collect 10% GST on all purchases added on to the price automatically.
And the GST included postage as well.
Add in the huge increase in international postage costs, the GST, and fall in the Australian dollar and prices of some things have gone up by a huge amount.
For example, I used to buy one item from a Japanese seller on eBay at around US$15.00. Small packet postage was around US$4 so my total cost was US$19 or around A$25 at that time.
Fast forward to recent times. The price of the item is now around US$25, postage has increased to US$15 (thanks to those international postage reforms proposed by Obama and approved under Trump), and GST on the purchase is US$4 for a total of US$44. With fall in the exchange rate it works out to around $A70 or so.
Guess what?
I don’t buy it anymore.
However if you travel overseas and return to Australia you can bring in $A900 per adult tax free. Some purchases for personal use such as clothes you bought overseas and used are not included in the amount. You can buy lots of stuff overseas much cheaper than in Australia and if brought back with you, you don’t have to pay exorbitant postage so it’s best to max out your shopping and allowance. You can probably pay for your ticket with the savings on price difference, GST, and postage savings.
But twhat about cigarettes one of those staples of duty free shopping?
Cigs – you are allowed one packet of cigarettes is all. Australia is the most expensive country in the world to buy those death sticks at around A$40 a pack. Yep, $A40 a pack.
What about booze?
2.25 liters of booze.
Again tax on booze here is high pushing up the price.
You can buy a 700ml bottle of JW Black Label for around A$58 here. It is cheaper in Japan at any grocery store…..Here you can’t buy booze at a grocery store either.
That’s the spirit… own nothing, be happy.
Exactly as I planned it with my minions and demagogues and “our democracy ™ “
Many things about Australia suck not the least of which was their authoritarian long running covid lockdowns and forced vaccination. Their retirement system is great though.
Yes, there are a few things better in Australia than some other countries, but there used to be a lot more. This place has changed a lot for the worse over the past 40 years or so.
Retirement system is good and better than the US. Even better if you have some money, but not too much.
No inheritance tax and no capital gains tax on your principal place of residence. IMO the government here in Victoria is going to try and implement an inheritance tax in the future. The state government is broke and in debt.
Land tax in Victoria is outrageous and real estate tax on your PPR has gone way up for basically nothing in return, but still way cheaper than the US.
Medical system is much cheaper than the US with prescription prices very reasonable. The public hospital system is basically free, but wait times for the ER and non life threatening surgery here in Victoria are too long. The ambulance service/waiting times are ridiculously long. Some people call a taxi to go to the ER even if they have a heart attack/stroke.
Crime is generally low in many areas, but again has increased a lot over the years.
The worst parts of Australia are the high cost of living and too much regulation of all aspects of life and business.
The United States could not bear 60% tarrifs on Chineese goods, lest there be civil unrest.
This isn’t 1929. The agrarian age is over, and so are any clever ways to enact US ecomic autonomy.
I smell Y.U.G.E. debt under Trump.
Would there be a tax on chinese ingredients(for lack of a better word) that make 90% of our antiobiotics?
What about Chinese parts that go into our fighter jets?
In 2023, the US imported 8.5 mbpd of petroleum products, including 6.5 mbpd of heavy crude oil that our refineries use.
8.5 mbpd x $80 x 30 day =$20 billion per month
A 25% tariff results in $5 billion per month in revenue for the US government. Unfortunately it all comes from the US consumer in the form of higher prices for gasoline, diesel, fuel oil, jet fuel etc
None of this comes from China. In fact we export oil and gas to China.
Yeah but all those 200,000 gas stations are competing with each other. Prices go up slowly and come down even slower. Sometimes it isnt macroeconomics. Sometimes its damn Zeke down the street whose station is taking all my business. I gotta compete.
Yes. There is a lot of competition in gasoline. Which is why profit margins are very low. The typical gas station net profit per gallon on gasoline ranges from 3-8 cents per gallon. That is why many stations have convenience stores to sell you items with high profit margins.
So if a station buys their gas from the refiner at $3.00 and Trump then adds a 25% tariff on the oil the refiner buys, then the refiner must boost the price to the gas station to $3.75. Add 8 cents profit and the pump price is now $3.83. And all those gas stations can compete at the new level.
Competing means either dropping your prices or offering some extra service which may or may not cost you more in the long run. I still think there will be a few desperate vendors who will be forced to drop prices no matter what the tariff is, at least for awhile.
You have a strange idea of what competition means. If all gas stations see their cost of gasoline increase from $3 to $3.75, there is nothing they can do about it. No amount of competition is going to bring the price below their breakeven cost of $3.75.
“Which is why profit margins are very low. The typical gas station net profit per gallon on gasoline ranges from 3-8 cents per gallon.”
Just wondering. In my area, Costco gas is ALWAYS $0.20 cheaper than the typical gas station. Does this mean Costco is losing $0.12-$0.17 per gallon? How can this be?
I find it very hard to believe that the typical gas station’s margin is 1-2%.
PapaD, come on!
Nope. Costco does not sell gas at a loss. Costco is willing to make a 1-2% margin on gas, as each location sells over 1 million gallons per month. And gas is a draw that gets people into their stores. Other gas stations, with convenience stores will take 2-3% margins on 100,000 gallons per month. Smaller independents need 3-5% margins as they may only sell 60,000 gallons a month.
Second, Costco can negotiate slightly lower prices when buying their gas due to their incredibly high volumes.
In addition, you need to purchase a Costco membership to buy gas at Costco. And Costco makes a large part of their profits from membership sales.
Most gas stations break even on the gas. They make their money selling stuff inside the station. This is why you see the rise of WaWa type gas stations that sell decent food along with a myriad of groceries Stopping for gas is just to lure you into the store.
In other words it’s highly unlikely gas stations will drop prices on gas because they are already making zero or next to zero profit on the gas.
Imported heavy crude is not priced at $80 a barrel so you entire post is incorrect.
lol!
WTI is currently $77.88, Brent is $80.79, and Murban is $83.65. And these numbers will change every day.
$80 was just a rough estimate in order to estimate possible tariff revenue in the coming months.
In addition, the 8.5 mbpd figure was an estimate as well, as this number typically fluctuates between 7 and 10 mbpd.
If I had said I was hot and sweaty because it was 100F outside, would you tell me that it’s not hot outside at all, and I can’t possibly be hot and sweaty because it’s not 100F; it’s only 99F, so everything else I said must be wrong?
Educate yourself and learn a little at the same time. The US imports a lot of crude from Canada and pays the market price for Canadian crude which is much lower than WTI.
You can even look up the price and see how much the discount for Canadian crude is from WTI.
Brent, Murban, and other oil prices are basically irrelevant in the USA oil market.
Yes. The US imports more crude oil from Canada than any other country. And at a discount to boot.
I am well aware of this because of my substantial holdings of Canadian oil and gas stocks. Even with a lower WCS price they are gushing some pretty generous free cash flow. And the price differential has been narrowing with the startup of the TMX pipeline.
The US also imports oil from Venezuela, Mexico, Saudi and others at higher prices.
I would be glad to redo the calculation for you based on your opinion. Just tell me what you think the “average” price for imported oil and petroleum products into the US will be in 2025, and what will be the average number of barrels per day of these products?
I estimated an average of 8.5 mbpd at $80. What is your estimate?
Perhaps you think the average price will be $70?
Then the calculation would be:
8.5 mbpd x $70 x 30 =$17.85 billion per month instead of $20 billion
A 25% tariff would then be $4.46 billion per month rather than 5 billion.
Or better yet. How about you tell me how much the US will collect in tariffs on imported oil and petroleum products in 2025?
How does China keep their slave labor busy in a trade war? The US can hunker down but what is to be done with idle hands that need to be fed. Back in the day they were pushed out to the border to build a massive wall. What would they do today? I have no idea but it’s a lot of people. What happens if they get ornery. As others have stated, the problem keeps Xi up at night.
Xi is probably more worried about where he’s going to be able to run to.
Trump is consistent: vulgar, grifting, cheap, tacky, lying, felonious, corrupt, abusive, vain, weak and ignorant.
Everything you need to be a successful autocrat. Except you need to be a little smarter and a little less lazy.
Colin Powell said much of the same about Hillary:
https://www.cbsnews.com/media/5-emails-in-which-colin-powell-slammed-hillary-clinton/
He himself lied about weapons of mass destruction so pick your poison.
I think that you meant Biden is ……
Did you seen where Speaker Johnson said he knew Joe was gone, when he didn’t realize that he had signed some EO?
But a refreshing change after the last administration.
But it doesn’t make him a bad person.
In other words we can expect continuity between administrations. Awesome!
Like all other developing countries the USA can restore manufacturing behind a high tariff wall. Japan did it. China did it. South Korea did it. Europe still does it.
While I do not know how much this may or may not influence the data, it has to be noted that an increasingly larger portion of Chinese exports to USA has pre-paid ocean freight. In other words, the shipper in China pays the ocean freight. Having spent my career in shipping, I can say that a large portion of Chinese exports to the USA is from a Chinese entity in China going to a Chinese consignee in the U.S. This is especially true for a type of cargo moving under a NVOCC bill of lading (non-vessel operating common carrier). I am not arguing with Mish’s analysis. I am just pointing out that the transportation costs maybe a variable impacting the data. The Chinese NVOCC trade between China (exports) and U.S. (imports) is massive!
Weeeellll in a normal world, there would also be a competition component to all this. If a business cant sell a widget for $100 cause its competition is selling it for less, the business would have to consider dropping the price of the widget to get at least some revenue for its (fixed) expenses. The tariff may not be passed on at all. It would just be a lost opportunity for profit for the business. But since this isnt the real world and Covid slammed shut the doors of a lot of businesses, the competition factor may be a lot smaller.