US findings on trade war with China show ‘self-inflicted harm’ of tariffs (2024)

Import tariffs placed on more than US$300 billion worth of Chinese goods during the Trump administration increased US prices, according to a report from a bipartisan US trade commission, confirming a widely held view among analysts of trade and tariffs that they caused “self-inflicted harm”.

The US International Trade Commission (USITC), an independent government agency that investigated the impact of the US-China trade war on America’s economy, said that prices for imports from China across some of the most affected industries – such as computer equipment, semiconductors, furniture, and audio and video equipment – rose by as much as 25 per cent in 2021.

While president in July 2018, Donald Trump announced a set of tariffs on Chinese goods, including semiconductors and chemicals, as Washington levied allegations of intellectual property theft and Beijing’s implementation of forced transfer technology – requiring foreign firms to share their tech in exchange for market access.

The tariffs were imposed in 2018 and 2019, adding 7.5 to 25 per cent taxes on Chinese goods, but this led to the prices of US-produced goods in some industries increasing by 3 to 4 per cent, the report said.

“They haven’t pushed China to alter its underlying economic model, nor to address many of the structural impediments to business that foreign firms face in the Chinese market,” said Nick Marro, lead analyst in global trade with The Economist Intelligence Unit. “If anything, we’re seeing China double down on those policies now, given the pressure from things like US export controls.”

The “Economic Impact of Section 232 and 301 Tariffs on US Industries” report came in response to a directive from US Congress as part of a law passed last year.

The tariffs may have helped spur multinational corporations into supply-chain diversification and expand their presence in countries such as Vietnam and Malaysia, he added, but Washington has not achieved its core goal from the trade war.

Imports of the affected goods from China decreased from US$311 billion in 2017 to around US$265 billion in 2021, the report added.

“The actual [impact from such tariffs] is not on the importer nor even the foreign exporter,” said Jayant Menon, a senior fellow at ISEAS-Yusof Ishak Institute in Singapore.

“This is very clear – from both theory and evidence – that, no doubt, actual incidents of tariffs are eventually bought by the final consumer or the producer that actually buys products.”

Also in 2018, the Trump administration passed section 232 of the Trade Expansion Act of 1962, imposing duties on steel and aluminium imports, on the grounds of protecting national interests.

The USITC found that, under section 232, imports of steel products were reduced by 24 per cent, raising US prices by 2.4 per cent and increasing domestic output by 1.9 per cent.

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Aluminium imports also fell by 31 per cent, while prices in the US rose by 1.6 per cent, and local production grew 3.6 per cent, the report added.

“This is why tariffs are seen as a relatively blunt policy measure, given that they cause self-inflicted harm when they’re imposed,” Marro added.

Furthermore, USITC commissioner Jason Kearns says in the “additional views” section of his group’s report that the findings paint an “incomplete picture” that fails to address the influence of Beijing’s unfair trade practices and Washington’s failure to change or respond to China’s behaviour.

“This report addresses the short-term impact of section 232 and section 301 tariffs on trade, production and prices in some of the most affected industries in the United States,” Kearns wrote.

“It does not describe where we have been or where we are going in our trade relations with China.”

Bryan Mercurio, a law professor at the Chinese University of Hong Kong, pointed out that the limited scope of the commission’s findings leaves some questions up in the air.

“It is a shame the ITC report intentionally limited the scope and excluded a broader, economy-wide assessment of the tariffs, as it remains questionable whether the tariffs produced a net benefit to the US economy,” he said.

The administration of Joe Biden has maintained Trump’s trade-restriction regime on imports of Chinese goods and is currently reviewing whether the tariffs should continue.

The administration is also looking to partially remove the tariffs in the wake of surging prices of consumer goods. Biden’s top trade negotiator, Katherine Tai, has pointedly called the tariffs “ significant leverage” against China and its alleged unfair trade practices that harm US interests.

Menon said that while the results suggest some negative impacts of the tariffs targeting Chinese imported goods, it is unclear when or if the trade war will wind down entirely.

“I think this is a continuation – and in some ways, an escalation – of the trade war. It’s not going away any time soon, because the trade war is actually a proxy war that reflects great power competition,” Menon said.

“So, this is about the rise of China, more than anything else,” he added. “It is unlikely to be resolved through trade negotiations or such policy measures.”

In April, the US court granted a partial victory to HMTX Industries, a Connecticut-based global manufacturer of vinyl tiles that filed a lawsuit in September 2020, challenging the legality of the USTR’s authority to extend the tariffs on Chinese goods.

In December, the World Trade Organization said the US tariffs on steel and aluminium violated international trade rules. Washington rejected the decision, and the trade duties remained unchanged.

The US and European Union are also reportedly considering whether to impose new tariffs on Chinese steel and aluminium as part of a bid to reduce carbon emissions.