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Monday, June 18, 2018

Got Tariff Fatigue?

Things are looking pretty bleak right now for U.S. trade policy.

Many of you are probably suffering from tariff fatigue right now. Every day, there is a new tariff in the news. Tariffs on Canada, tariffs on the EU, tariffs on China; tariffs on industrial products, tariffs on agricultural products; retaliatory tariffs by Canada, the EU and China; tariffs in effect today, tariffs going into effect soon. It’s hard to keep track of it all.

Trump’s Trade War Continues 

The latest is the announcement from USTR today of U.S. tariffs to be imposed on $34 billion of Chinese imports on July 6:

The Office of the United States Trade Representative (USTR) today released a list of products imported from China that will be subject to additional tariffs as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property.   

On May 29, 2018, President Trump stated that USTR shall announce by June 15 the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy.  Today’s action comes after an exhaustive Section 301 investigation in which USTR found that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden U.S. commerce. 

The list of products issued today covers 1,102 separate U.S. tariff lines valued at approximately $50 billion in 2018 trade values.  This list was compiled based on extensive interagency analysis and a thorough examination of comments and testimony from interested parties.  It generally focuses on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.  The list does not include goods commonly purchased by American consumers such as cellular telephones or televisions.

This list of products consists of two sets of U.S tariff lines.  The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6.  These lines cover approximately $34 billion worth of imports from China.  USTR has determined to impose an additional duty of 25 percent on these 818 product lines after having sought and received views from the public and advice from the appropriate trade advisory committees.  Customs and Border Protection will begin to collect the additional duties on July 6, 2018.

The second set contains 284 proposed tariff lines identified by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including the “Made in China 2025” industrial policy.  These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process, including a public hearing.  After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties.

Trying to divine the Trump administration’s true intent with regard to all of its various tariffs is a challenge. One view is that the administration is just negotiating, and it believes it can get the best deal by threatening tariffs, as this will cause our trading partners to offer more in the negotiations. In this view, a threat of duties to be imposed on July 6 is supposed to induce China to make more significant concessions in the ongoing negotiations that have been taking place on the various trade practices noted by USTR above.

There’s not much evidence that negotiating trade agreements in this way is effective, especially with a larger economy like China. In fact, it may make a successful negotiation more difficult. Other countries have their own politics to deal with, and no foreign leader wants to look weak by caving it to American pressure.

Tariffs Harm Everyone 

Another possibility is that the administration thinks it is good policy for the U.S. to impose tariffs, and while they may talk about negotiations, their real objective is to have higher tariffs. They know others will retaliate, but they think the U.S. wins on balance, maybe in part because they think manufacturing is more important than anything else, and the U.S. tariffs tend to be on manufactured products and related inputs, whereas the foreign tariffs are often on agricultural products.

If this is the administration’s intent, the economy may be in for a bumpy ride. The quantity of the imports subject to all of the Trump administration’s various tariffs is getting large (and may get much larger soon if they impose tariffs on auto imports), and the negative impact on the economy may, as Gary Cohn has acknowledged, become apparent once all the tariffs are in effect (the tariffs could even erase the gains from tax reform).

Things are looking pretty bleak right now for U.S. trade policy. Congress could and should step in here, but that does not look likely at the moment. Retaliation by U.S. trading partners might get the administration’s intention, but as noted, the administration may see all the additional tariffs as a win. In the end, the costs of all this to the U.S. economy will become apparent. In the meantime, all Americans will pay a price for whatever it is the administration thinks it is doing.

Reprinted from Cato at Liberty. 

  • Simon Lester is a trade policy analyst with Cato’s Herbert A. Stiefel Center for Trade Policy Studies.