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Talking Trade blog

Making tariffs great again and again

Published 02 August 2019

US President Donald Trump has announced another escalation in the ongoing trade war with China. The US will start imposing another 10% worth of tariffs on an additional $300 billion in imports from China, starting September 1.

This means that nearly every product imported from China into the United States will now be subject to tariffs ranging from 10-25%. 

The Peterson Institute of International Economics (PIIE) has just updated this chart to show that the average US tariff on Chinese imports has jumped from 3% before Trump to 24.5% today.

The previous three rounds of tariff rate hikes largely sheltered US consumers.  Tariffs were applied on mostly primary and intermediate products, raising costs to producers.  These higher costs may—or may not—have been directly apparent to shoppers.

The latest batch of tariffs, however, are on items that are directly obvious to customers in stores, including clothing, shoes, phones, video games and practically every item on or under a Christmas tree. 

Trump’s latest move is likely to have been a shock to most observers.

In fact, I had bets going with a wide range of people that Trump would not make it out of August without imposing tariffs on the so-called “List 4” products.  Most argued I was crazy. 

Trump, they said, would not escalate the trade war at this time.  He would most likely bide his time until next year, engaging in trade talks with China with just enough enthusiasm to say that he was working on the problem, but not enough to solve anything too soon before the election.  Voters can have short attention spans and an early resolution of the China problem would not give him an electoral bounce in November 2020.

The List 4 hearings in Washington in mid-June involved hundreds of companies across seven days and nearly 3000 submissions.  Nearly all were united in arguing against more tariffs on China and about the damage to be done by imposing tariffs on the remaining products, which had been carved out of the previous tariff policies for good reasons. 

But I thought Trump would ignore this advice.  Hearings in Washington took place already, clearing the way for the imposition of tariffs at any point.

To expect Trump not to impose them was like asking a child not to play with an exciting new toy that has been placed within reach. 

The timing of Trump’s announcement is interesting.  He made his decision known, as he so often does, in a series of Tweets.  They started immediately after his own negotiators were back from meetings in Beijing.

The Beijing talks did not deliver the key thing that Trump wanted—concrete promises of large agricultural purchases.  Trump has insisted since his June G20 discussions that Chinese President Xi pledged to buy significant quantities of soybeans and other farm products. 

No one else seems to have heard the same words in Tokyo that Trump says were uttered, which has led to a series of challenging conversations in the weeks that have followed.  The Chinese have not bought agricultural products in the quantities that Trump expected, nor do they appear to have promised to do so in Beijing. 

[Chinese promises on curbing fentanyl shipments to the United States have also now been added to the large and growing list of issues that need to be addressed between the two sides before any resolution of the dispute can take place.] 

The practical implications of a new, 10% tariff on an additional $300 billion in imports is likely to be heatedly debated in the coming months.  For most industries and sectors, the impact will clearly be unwelcome.  For products like basic clothing, with already thin profit margins, a sudden increase in price of 10% can be catastrophic.  Other sectors can pass along the costs or absorb them for a time.

Trump still does not believe that US consumers or firms pay tariff costs.  His comments from an impromptu meeting with the press before heading off to a campaign event in Cincinnati: 

We've taxed China on 300 billion dollars' worth of goods and products being sold into our country. And China eats it because they have to pay it. Because what they do is they devalue their currency and they push money out.

Our people haven't paid, as you know. We're also charging them 25 percent on $250 billion. So we're taking in many billions of dollars. There's been absolutely no inflation. And frankly, it hasn't cost our consumer anything; it costs China.

Beijing will, of course, retaliate for US actions.  China does not import enough goods products to match tariff rate hike-for-tariff rate hike.  It has plenty of other weapons.  It can raise tariffs on the products it does import from the United States beyond the currently imposed rates.  It can retaliate against US services companies.  It can increase inspections, tighten licensing, and drown every US company currently operating in China with mountains of new, carefully reviewed, paperwork. 

Trump has already declared that there is no negotiated pathway to avoid the escalation in tariffs before September 1.  He will ask his officials to keep talking on an overall solution, but getting any sort of deal done is increasingly difficult as both sides become more entrenched. 

Given the extent to which US-China trade flows across the region and beyond, continued escalation of bilateral hostilities is deeply alarming.  Firms will continue to struggle to navigate a highly uncertain world. 

Companies that have just begun thinking about whether to shift supply chains should be actively exploring and even activating contingency plans. 

At the very least, the escalation of tariffs should finally stop people from asking “are we in a trade war?”  Tariffs on every single product from the two largest economies and the economic fallout that these tariffs are imposing on countries around the globe is, indeed, a trade war.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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