Tariffs Against China: A Key Policy That’s Here to Stay
Introduction:
The next administration will likely be pro-tariff, as both Democrats and Republicans agree that tariffs against China are necessary. While the conversation has shifted from whether tariffs are necessary to how they can best be implemented, the question of who bears the cost of tariffs remains a topic for debate. In this article, we will analyze the current administration’s stance on tariffs and the potential impact on various industries and consumers.
Tariffs as a Tool to Level the Playing Field:
Both the Trump and Biden administrations have utilized tariffs as a means to level the playing field for domestic manufacturers, especially as China floods the US market with cheap goods. Without tariffs, domestic industries would continue to lose market share and cut jobs. A poll conducted by the CATO Institute found that a majority of both Republicans and Democrats support tariffs levied by their own party. Former President Donald Trump even expressed his intention to raise China tariffs to 60 percent and apply tariffs to goods imported from other countries. Vice President Kamala Harris’s position on tariffs is less clear, but it is likely that she would retain the current administration’s policies.
Tariffs: A Complex Impact on the Economy:
When the Trump administration first imposed tariffs on Chinese goods in 2018, they were met with criticism from many economists. According to conventional free trade theory, tariffs distort the market, reduce competition and market efficiency, and slow economic growth. They also raise retail prices, effectively reducing consumers’ net income. However, the Coalition for a Prosperous America argues that the net impact of tariffs is more complicated than these analyses suggest. For example, a study conducted by the organization found that washing machine tariffs created more than 2,000 new jobs at Korean-owned companies that opened factories in the US. Additionally, the price of washing machines, after an initial increase, eventually came back down to pre-tariff levels. These findings suggest that tariffs can have a positive impact on specific industries and job creation.
Tariffs and Sector-Specific Impact:
The impact of tariffs varies across different sectors. In the solar industry, for instance, China controls more than 90 percent of the global supply chain. Tariffs imposed by both the Trump and Biden administrations have helped create a domestic industry in the US, which was previously heavily reliant on imports. Paula Mints, the chief analyst of SPV Market Research, believes that US manufacturing in the solar industry would not exist without tariffs. She highlights the importance of tariffs in leveling the playing field and incentivizing manufacturers to locate in the US. Similarly, William Lee, chief economist at the Milken Institute, argues that tariffs can be a necessary distortion to address real-world market challenges, such as government subsidies and the need for diversified industries in certain sectors.
Different Approaches of Trump and Harris:
While both political parties agree on the need for tariffs against China, their policies and approaches may differ. Some experts believe that the Trump administration viewed tariffs in a retaliatory and aggressive way, which would likely continue in a second term. On the other hand, the Biden administration acknowledges that tariffs raise costs for buyers and may be more inclined to issue government direction regarding the use of tariff revenues. Derek Scissors, chief economist of China Beige Book, suggests that quotas may be a more effective approach, as they directly target concerns about Chinese predation and American dependence. Nick Iacovella, a senior vice president at the Coalition for a Prosperous America, believes that a second Trump administration would go further on tariffs and industrial policy than a Harris administration, as Trump has a greater understanding of the China threat.
Conclusion:
Regardless of who wins the White House in November, tariffs against China are likely to remain a key policy. Both the Trump and Biden administrations recognize the need to address unfair trade practices and protect domestic industries. While tariffs have been criticized for their potential negative impact on consumers and the overall economy, studies have shown that they can have positive effects in specific industries. Moving forward, it will be important for the next administration to use tariffs strategically, considering the specific needs of different sectors and ensuring that they are accompanied by domestic incentives and protections.
