U.S. tariffs on Chinese imports are poorly considered

Sara Hsu China Plus Published: 2018-03-30 11:12:51
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By Sara Hsu

President Trump announced the placement of $50 billion in tariffs on Chinese imports to the U.S. in response to what the U.S. has determined is intellectual property theft by Chinese firms from American businesses operating in China. The tariffs also appear to be Trump's way of reducing the American trade deficit with China. Both reasons for the tariffs are poorly considered, as trade restrictions cannot benefit the US.

Steel workers pack up galvanized plates at a branch of Ma'anshan Iron and Steel Company (Magang Group) in Ma'anshan City, east China's Anhui Province, Sept. 22, 2014.[Photo: Xinhua]

Steel workers pack up galvanized plates at a branch of Ma'anshan Iron and Steel Company (Magang Group) in Ma'anshan City, east China's Anhui Province, Sept. 22, 2014.[Photo: Xinhua]

Protectionist policy

The US set a target of 15 days from the first announcement to declare the list of goods that will incur tariffs. Tariffs may target sectors that are key components of China’s Made in China 2025 program, which seeks to bolster industries like robotics and advanced microchips. The U.S. has complained that these sectors are subsidized by the Chinese government and unfairly compete with American businesses. China is not willing to negotiate this point, as government support is a critical part of building up China’s high-tech industries. The planned duties of up to 25% violate World Trade Organization rules, which permit tariffs only in the case where goods are considered to be traded unfairly, not for blanket retribution against another country.

U.S. Treasury Secretary Steven Mnuchin and U.S. trade representative Robert Lighthizer sent a letter to Vice Premier Liu He requesting a reduction of Chinese tariffs on imports of American automobiles, increased Chinese purchases of American semiconductors, and better access by American firms to China’s financial sector. China had already pledged to lower tariffs on automobile imports.

Overall, China was not amused. China responded by announcing plans to implement tariffs of up to $3 billion on imports of American goods, including fruit, wine, and ethanol. China has also indicated that it is willing to go further if a trade war is carried out. The commerce ministry stated, “China doesn’t hope to be in a trade war, but is not afraid of engaging in one. China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”

Tariffs are not the answer

Unfortunately, there is a real problem in U.S.-China economic relations, and tariffs don’t address them properly. The issue is that American businesses operating in China have been required to set up joint ventures with Chinese firms and to hand over intellectual property in order to enter the market. American businesses have pushed back on this for some time, asserting that this is a violation of global trade roles. The forced technology transfer presents a huge barrier to entry for American firms wanting to do business in China.

However, tariffs are not the answer to this. Tariffs are a blunt weapon that strongly and negatively impact consumers and producers. Protectionist policies have been shown to damage the economy. Both broad and targeted tariffs implemented in the U.S. have been proven to be at best ineffective, if not destructive, as experienced under widespread tariffs imposed during the Great Depression. 

The Trump administration has stated that the U.S. will attempt to target items that businesses purchase, including information technology products and industrial machinery, in order to shield consumers from the worst effects of the tariffs. However, it is probable that businesses will pass on increased costs to consumers. In addition, a greater burden on businesses may also affect employment, causing firms that are less able to bear the costs of the new duties to lay off workers in order to purchase the same amount of high tech products. Capital-intensive businesses that use high-tech products, including small businesses, are likely to suffer greatly.

The tariffs will also fail to reduce the U.S. trade deficit with China. The trade deficit is determined by market forces, and is not a zero-sum game. In fact, trade can be fashioned to yield a net positive outcome for both parties. This is because trade generally makes goods less expensive for consumers in both trading nations. President Trump has failed to grasp this basic fact; he views the deficit as a “loss” to America. Yet, in reality, the deficit means that the U.S. demands more goods from China than China does from the U.S., and to balance this, China holds more dollar reserves than the U.S. holds RMB reserves.

What may be more beneficial is dialogue between the U.S. and China. This is something that the U.S. abandoned last year and had only tentatively committed to this year; it can be said that the Trump administration has vastly underused diplomacy as a mechanism to resolve differences. Because Trump remains wary of China’s promises, it seems unlikely for him and his cabinet to use negotiation as a tactic. Still, the fact is that negotiation and cooperation are probably the only means to resolve these issues.

(Sara Hsu, associate professor, the State University of New York at New Paltz)

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of chinaandgreece.com, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.