Tag Archives: retaliation tariffs

Trump’s $60 billion in China tariffs will create more problems than they solve

File 20180323 54872 ja8es9.jpg?ixlib=rb 1.1

Business such as California winemakers could be hurt by the new tariffs as a result of retaliation. AP Photo/Mark Schiefelbein

William Hauk, University of South Carolina

After spending seven months investigating whether China is engaged in unfair trade practices, the Trump administration announced March 22 that it will impose tariffs on as much as US$60 billion in Chinese imports.

The tariffs are meant to address two problems: intellectual property theft by China and a steep and persistent trade deficit.

As an economist and expert in international trade, I don’t see how the proposed tariffs will resolve either one. In fact, it’s more likely that they will create two new problems by hurting both consumers and businesses.

IP theft and trade deficits

The administration formally justified its tariffs by invoking Section 301 of the Trade Act of 1974, which allows the president to impose tariffs on countries in violation of international trade deals.

In particular, the Trump administration accused China of engaging in intellectual property theft forbidden by World Trade Organization agreements.

Intellectual property theft has been a major complaint of American companies doing business in China for decades. Sometimes this theft occurs through illicit means, such as industrial espionage. It also occurs through legal channels, such as when U.S. companies are forced to form a joint venture with a Chinese business. In other cases, technology transfers are a precondition of doing business in China.

Altogether, the U.S. trade representative estimates that these policies cost U.S. businesses around $50 billion a year.

The other problem that has long irked the president is the significant trade deficit. Since the U.S. normalized trade relations with China in 2000, the deficit ballooned from less than $84 billion to over $375 billion in 2017.

This “China shock” of cheap goods has caused considerable disruption in the U.S. economy. The labor market has been surprisingly slow to adjust, leading affected workers to earn far less money over a lifetime.

President Trump signs a presidential memorandum imposing tariffs and investment restrictions on China. AP Photo/Evan Vucci

The wrong solutions

It remains to be seen, however, whether the tariffs will alleviate either problem.

The administration’s calculation seems to be that China will back down on intellectual property theft if faced with less access to U.S. markets.

But China is less dependent on U.S. trade now than it was a decade ago, making its economy resilient to these sorts of punitive measures. The U.S. accounted for 18.4 percent of Chinese exports in 2016, down from 21 percent in 2006.

The U.S. likely would have better luck resolving this problem at the WTO, which China joined in 2001 and must abide by its rulings. The best part about a WTO ruling is that it would affect all of China’s exports, not just those to the U.S.

Similarly, the trade deficit is unlikely to be resolved through higher tariffs. The primary cause of the persistent trade deficit – $566 billion in 2017 – is an imbalance between savings and investment in the U.S. economy.

The U.S. personal savings rate has fallen steadily since the late 1970s. At the same time, the government has run persistently large budget deficits, both of which have increased the level of borrowing in the U.S. economy.

As a result, foreign investment, particularly from China, has become increasingly critical to financing U.S. economic growth. This is great news in terms of helping Americans buy cheap Chinese goods and the government finance its budget deficit. But all that foreign cash going into the financial market isn’t being used to buy the stuff Americans are producing, like Harley Davidson motorcycles and Iowa corn.

This results in lower exports and a higher trade deficit. Tariffs will not change this reality.

Two new problems

While the full details of the tariffs have yet to be released, it’s clear they’ll cause at least two immediate problems.

One is that U.S. consumers will be hurt. The typical consumer has about $260 in extra purchasing power as a result of trade with China. Those benefits, which disproportionately go toward working-class Americans, will fall due to the U.S. tariffs, as American importers will pass some of their increased costs along to consumers.

Secondly, American companies that export to China will be exposed to retaliation in the form of tariffs on U.S.-made goods. Shortly after Trump’s announcement, China released its own policy statement targeting $3 billion worth of U.S. exports.

Particularly vulnerable to Chinese retaliation are the pork and soybean industries, which are concentrated in the Trump-friendly Midwest. This list could grow if a trade war with China escalates.

A broader concern is that, by acting unilaterally, the Trump administration is undermining the broader system that has facilitated the growth of international trade and adjudicated grievances between countries since World War II.

The ConversationWhile far from perfect, organizations such as the WTO have limited the scope of trade wars since the chaos of the 1930s. Failing to uphold these institutions could have major consequences in the future.

William Hauk, Associate Professor of Economics, University of South Carolina

This article was originally published on The Conversation. Read the original article.

Share

This WTO Ruling Is Perfect Example of How Big Trade Deals Trump Democracy

NAFTA partners can sue the U.S. for a combined $1 billion annually in retaliatory tariffs over Country of Origin Labels for meat

Written by Lauren McCauley, staff writer for Common Dreams. Published 12-7-2015.

Republican lawmakers and meat industry lobbyists, now bolstered by the WTO ruling, are working to overturn meat labeling provision that 92 percent of public supports. (Photo: Jason Tester Guerilla Futures/cc/flickr)

Republican lawmakers and meat industry lobbyists, now bolstered by the WTO ruling, are working to overturn meat labeling provision that 92 percent of public supports. (Photo: Jason Tester Guerilla Futures/cc/flickr)

In a move that watchdogs say presents a “glaring example of how trade agreements can undermine public interest policies,” the World Trade Organization (WTO) ruled on Monday that the U.S. can be forced to pay $1 billion annually by NAFTA partners for its establishment of food safety laws.

In its decision, the WTO authorized $781 million from Canada and $227 million from Mexico in annual retaliation tariffs over the U.S. law requiring Country of Original Labels (COOL) for certain packaged meats, which food safety and consumer groups say is essential for consumer choice and animal welfare, as well as environmental and public health.

The United States’ North American trading partners argued that being forced to label where animals were born, raised, and slaughtered placed an undue burden on livestock producers and processors and, as AgriPulse reports, “ultimately persuaded the WTO that the law accorded unfavorable treatment to Canadian and Mexican livestock.”

Lori Wallach, director of Public Citizen’s Global Trade Watch, said on Monday that the ruling “makes clear that trade agreements can—and do—threaten even the most favored U.S. consumer protections.”

Citing a May 2015 speech during which U.S. President Barack Obama brushed aside warnings that agreements like NAFTA and the pending Trans-Pacific Partnership (TPP) could undermine important regulations, Wallach continued: “We hope that President Obama stands by his claim that ‘no trade agreement is going to force us to change our laws,’ but in fact rolling back U.S. consumer and environmental safeguards has been exactly what past presidents have done after previous retrograde trade pact rulings.”

The ruling comes just two weeks after the WTO also ruled that U.S. “dolphin-safe” tuna labeling poses a “technical barrier to trade” that must be eliminated or weakened.

Consumer advocates say that rulings provide a stark warning as Obama attempts to rally congressional support for the 12-nation TPP, which critics warn also compromises food safety by, among other things, limiting inspections on imported foods.

The Republican-led House of Representatives last spring already passed a measure repealing the meat label provision—despite the fact that 92 percent of Americans support the policy.

Now, with the WTO ruling bolstering their case, meat industry lobby groups, including the National Cattlemen’s Beef Association, are pushing the rest of Congress to follow suit.

According to AgriPulse, “Sources have indicated that a repeal provision may be attached to either the omnibus spending bill expected to be debated this week or a customs enforcement bill also expected to be considered before Congress is scheduled to adjourn for the year next week.”

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.

Share