Friday, May 25, 2018
Business

PolitiFact: Are tariff inequities as steep as Donald Trump says?

The statement

"Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes — but when foreign companies ship their products into America, we charge them nothing or almost nothing."

President Donald Trump, Feb. 28 in a speech to Congress

The ruling

Trump's generalization that "many" countries make us pay "very high" tariffs and taxes is misleading.

Tariffs are another form of tax that are imposed on many goods as they enter a country. They're designed to make homegrown products more competitive.

The United States has many trade partners, and most tariffs with key trading partners like the European Union, Australia and Canada are relatively low. (In Canada, we pay zero tariffs due to the North American Free Trade Agreement.)

However, American exporters trying to access particular markets for certain goods do pay much higher tariffs compared to what the United States charges exporters in those countries.

For example, tariffs in developing countries are typically higher. For example, Rwanda's tariff rate was 13.9 percent in 2012, while the United States rate sat around 2.7 percent, according to data collected by the World Bank.

So, in a sense, many other countries make the United States pay higher taxes, but those countries are usually quite small and trade relatively little with the United States.

Trump also talked about taxes. Other countries charge their full value added tax on imports, while the United States does not have a VAT and uses a larger corporate income tax.

The VAT is collected at each stage in the production or distribution of a product or service, but with a refund mechanism for VAT paid on purchased units so the final burden falls on the final buyer or consumer.

For example, when a clothing wholesaler sells some pants to a retailer, the tax is booked on the wholesaler's markup. When the retailer sells the pants to a customer, the tax is booked again. But the retailer gets a credit back for the tax paid by the wholesaler.

"So our producers do face 'very high' taxes in many markets," said Gene Grossman, a professor of international economics at Princeton. "However, the local producers also face these taxes when they sell locally, so the taxes do not disadvantage the United States producers relative to the local producers."

For example, in many circumstances, a VAT administered in the manner that Europe or Japan does so is neutral with respect to trade, he said.

The United States' tariff rate is far lower than those of other countries. But Trump exaggerated when he said the United States charges nothing or almost nothing.

On average, tariffs imposed at the border in the United States are 1.5 percent, according to a March 2016 report from the U.S. International Trade Commission. That is below the 2012 world average, which was about 4 percent, according to the World Bank.

For a more specific example, you can look to China.

For non-agriculture products, the U.S. tariffs on Chinese goods sold in the United States is about 2.9 percent, while Chinese tariffs on U.S. goods sold in China faced a 5 percent tariff.

So, it's really a mixed bag. There are examples of countries that make the United States pay high tariffs and taxes, but there are other countries that charge about the same or nothing.

As for the second part — that we charge them almost nothing — we do charge something, but experts said that something is relatively low on a global setting, so Trump has a point.

Overall, we rate this claim Half True.

Edited for print. Read the full version at PolitiFact.com.

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