Customs duties are tariffs, or taxes, placed on goods in international commerce. Tariffs may be levied on imports or exports. They’re designed to protect the local economy by limiting imports or deterring the export of certain domestically produced items.
According to the U.S. Trade Representative, the United States has a trade-weighted average tariff rate of 2 percent for non-agricultural goods, one-half of which enter the United States duty-free – without a tariff. On average the United States imports about $2.2 trillion in goods each year, generating about $31 billion in customs duties. The U.S. Department of the Treasury’s Monthly Treasury Statements provide information on customs duties.
- January 2018 – The Trump administration took the first step in its efforts to rebalance U.S. and global trade in by raising customs duties on solar panels and washing machines.
- March 2018 – The United States introduced 232 national-security tariffs on steel and aluminum.
- July and August 2018 – The United States imposed tariffs on $50 billion of goods imported from China.
- September 2018 – The United States imposed tariffs on an additional $200 billion worth of Chinese goods.
- May 2019 – Tariffs on $200 billion in goods imported from China were increased from 10 percent to 25 percent.
- Future – More tariffs could be forthcoming as the administration is considering targeting an additional $300 billion worth of Chinese products.
- As a direct result of those actions, U.S. tariff revenues have almost doubled. The United States in 2018 collected a record $50 billion in customs duties. During the first four months of 2019, Treasury Department data reveals customs duties totaled $22 billion, an increase of 78 percent from prior-year levels. They reached $6.6 billion in January 2019 alone. Assuming the current pace of tariff-revenue collections continues, the United States will collect almost $72 billion in customs duties in 2019 – that’s $22 billion more than the previous record.
Additional tariffs impact U.S. imports
Given that customs duties collected on U.S. imports historically have averaged $2.6 billion per month prior to the administration’s use of 232 and 301 tariffs, it’s possible to use the change in collected tariffs to estimate how much in additional customs duties has been collected since January 2018.
A comparison of customs duties collected in 2018 – and year-to-date in 2019 – to the duties collected in the prior years reveals the difference. During the 16 months that 232 and 301 tariffs have been in effect, customs duties have increased by about $25 billion or 55 percent. The increase in customs duties was the most in January 2019 when an additional $3.7 billion was collected, leading to total customs duties of $6.6 billion. The increase in customs duties represented an increase of 123 percent compared to a pre-safeguard and pre-retaliatory-tariff environment. Figures 2 and 3 highlight the year-over-year changes in tariff revenues collected on a dollar basis and on a percentage basis. An adjustment was made to capture the additional tariffs collected in 2018 but reflected in the 2019 year-over-year calculations.
As evidenced in figures 2 and 3, additional tariff revenues have started to decline since January 2019.
- $2.6 billion in February
- $2.5 billion in March
- $2.2 billion in April – the most recent month available from the Treasury Department
While tariff revenues have declined, U.S. imports have not. During the first quarter of 2019, the United States imported $598 billion in goods from around the world – decreasing only slightly from first-quarter 2018’s imports of $599 billion.
But compared to 2017, and despite increased customs duties, U.S. goods imports in 2018 and 2019 were almost $50 billion or 9 percent more than imports in the first quarter of 2017 –prior to the 232 and 301 customs duties. The lack of growth in 2019 imports demonstrates the impact of the additional tariffs on U.S. import volume.
Given that imports in aggregate have not substantially declined, the decrease in additional tariff revenue is likely due to a decline in U.S. imports of goods subject to increased duties –imports from China and other countries subject to increased customs duties. Further examination of “U.S. Trade in Goods by Country” data from the U.S. Census reflects those decreases.
- U.S. imports from China in the first quarter of 2019 were at $106 billion. That’s a decrease of $17 billion or 14 percent from prior-year levels.
- U.S. imports from Canada, also subject to additional customs duties, totaled $74 billion. They decreased by $2.6 billion or 3 percent from prior-year levels.
The decline in imports from those countries likely contributed to the decline in additional tariff revenues collected.
While imports from China and Canada decreased, imports from other trading partners increased. Imports from the rest of the world during first-quarter 2019 totaled $418 billion. That’s an increase of $19 billion or 5 percent compared to first-quarter 2018.
- Imports from the European Union totaled $122 billion – an increase of $6 billion or 5 percent from prior-year levels.
- Imports from Mexico in the first quarter totaled $87 billion – an increase of 5 percent or $4 billion from prior-year levels.
Figure 4 highlights the year-over-year change in U.S. goods imports in U.S. dollars on a nominal basis and not seasonally adjusted.
Additional tariff duties are increasing the magnitude of customs duties and slowing the growth in U.S. imports of goods from selected countries. As a direct result of the tariffs, U.S. imports from China during first-quarter 2019 decreased by $17 billion or 14 percent from prior-year levels. Year-over-year trade growth on imports of goods from China decreased by 19 percent in March 2019. It was the second-worst level in nearly 20 years. Additional tariffs on China are likely to not only further reduce imports but may also increase customs duties collected – given that tariffs have increased from 10 percent to 25 percent and the United States is considering tariffs on an additional $300 billion in Chinese goods.
The tariffs on steel and aluminum, as well as on products imported from China, have increased tariff revenues by an estimated $25 billion since January 2018 and are on pace to reach or exceed $72 billion in customs revenue in 2019. Importantly those customs duties are paid by the person(s) or entities importing the products. Those duties could ultimately be passed onto the U.S. consumer given that they increase the transaction costs along the business supply chain.