THE ECONOMIST: Chinese trade

The latest round of potential tariffs on imports from China expands the list to include virtually everything, and almost every sector will be adversely impacted. Numerous products which were removed via the hearing process from the $34 billion (“List 1”), $16 billion (“List 2”) and $200 billion (“List 3”) rosters are now included in the proposed $300 billion list (“List 4”).

When tariffs are collected by importers, a portion of the additional expense is passed along to consumers in the form of higher prices. Economists at the Federal Reserve in New York estimate that the current tariffs cost about $831 per household, per year due to price increases for goods subject to tariffs as well as higher costs in other indirect ways as businesses try to work around the tariffs and inefficiencies are introduced.

With List 4 including virtually everything, the price increases would go even higher and likely become more obvious. These tariffs would apply to clothing, toys, backpacks, and other consumer items. Past lists have not included large categories of consumer goods, which tends to make the price increases more difficult to recognize and quantify.

Trade Partnership Worldwide, which studies trade issues, estimates that, if the List 4 tariffs go into effect and China retaliates (which is almost certain), it would cost the US nearly 2.2 million jobs and an average family of four would pay $2,300 more per year due to higher costs for goods and services.

This analysis notes that the sectors experiencing the largest declines in exports include those primarily feeling the brunt of retaliation (such as forestry products, oilseeds, non-bovine animal products, iron and steel, and wood products), but also many other sectors that are now less competitive internationally due to U.S. tariffs (electronic equipment, metals, textiles, clothing, and footwear and leather products).

A threatened tariff by China on LNG from the U.S. would deal a major blow to the Texas energy sector.

A trade deal with China is not just about leveling the playing field in terms of opening markets and avoiding unfair subsidies and similar practices. A March 2018 report from the Office of the United States Trade Representative documented how China forced technology transfer, failed to protect American intellectual property rights, and conducted and supported cyber theft from American companies, robbing them of sensitive commercial information and trade secrets.

These are big issues indeed with potentially lasting consequences, and it is crucial that a U.S.-China deal addresses them in a meaningful way. It’s a difficult task, but not one that can be accomplished with tariffs. The longer the tariffs go on and the broader the list of covered items, the more the negative effects already being felt will intensify.