We compute the total economic effect of import tariffs as the sum of the red and green areas in Figure 1. This can be interpreted as the monetary value that Chinese firms and US consumers would be willing to (jointly) pay to avoid these tariffs. The aggregate welfare losses in China and the US are around USD 1.6 billion. Only about one third, or USD 522 million, of these losses are sustained by US consumers (green triangle in Figure (1), while the remainder falls to Chinese exporting firms. To evaluate the total welfare effects for US consumers and firms, we have to consider potential tariff revenues. Most of the tariff incidence falls on Chinese firms. It is their declining profit margins that would pay for a large share of the tariffs, i.e. the red rectangle in Figure 1. These tariff revenues can be used to compensate for the welfare losses of US consumers. In total, the tariff revenues of the tariffs introduced by President Trump amount to USD 22.5 billion, of which USD 18.9 billion are to be paid by Chinese firms. This implies net welfare gains of USD 18.4 billion for US consumers.
