Tariffs Protect US Industries From China

China’s unfair trade practices continue
September 11, 2021 Updated: September 30, 2021

News Analysis

The Trump-era tariffs on Chinese goods should remain in place until the Chinese regime refrains from engaging in unfair trade practices.

The U.S. trade deficit with China stands at slightly more than $187 billion thus far in 2021. Since President Joe Biden took office in January, the trade deficit increased by 46.4 percent compared to the same period in 2020. Biden hasn’t yet developed a China trade policy. Meanwhile, China’s unfair trade practices continue.

For years, U.S. businesses have been complaining about unequal access to Chinese markets. U.S. companies are barred from many of China’s business sectors, while Chinese businesses, even state-owned enterprises, enjoy unobstructed access to essentially every sector of the U.S. economy.

The Trump administration was also concerned about U.S. industries such as automotive and aircraft manufacturing, which were facing an unleveled playing field, as the Chinese Communist Party (CCP) subsidizes those and other industries. It’s much harder for U.S. companies to earn a profit when competing with Chinese entities that receive ongoing grants and soft loans from the CCP and state-owned banks. Favored CCP industries and companies enjoy government protection from competition, both at home and abroad, garnering for the regime unprecedented economies of scale.

WeChat is an example of the kind of economies of scale enjoyed by favored Chinese companies. It’s nearly impossible for either a Chinese company or a foreign company to launch a communication app in China. Consequently, WeChat is used by the vast majority of China’s population of 1.4 billion people, making it one of the largest apps in the world.

In response to unfair Chinese trade practices, the Trump administration levied $550 billion of tariffs on goods imported from China. Initially, Biden’s Treasury Secretary Janet Yellen said the tariffs would continue. As of August, $360 billion of those tariffs remain in force. In a recent statement, Yellen said that she wants to review the Trump-era tariffs, as she felt they may not have been levied in such a fashion as to best protect U.S. interests.

Liu He and US President Donald Trump
Chinese Vice Premier Liu He and U.S. President Donald Trump sign a trade agreement between the United States and China in the East Room of the White House on Jan. 15, 2020. (Saul Loeb/AFP/Getty Images)

Many prominent economists, including Nobel Prize winners Milton Freedman and Paul Krugman, have spoken out about the destructive nature of trade tariffs, calling for a repeal of the Trump-era tariffs. On the other hand, The New York Times confirmed what many in the Trump administration already knew, that while China would be grateful for a repeal of the tariffs, they haven’t agreed to end subsidies to state-owned enterprises or to refrain from engaging in any of the other unfair behaviors identified by the administration.

Tariffs are taxes imposed on products imported from other countries, usually as a fixed percentage of the product values. The companies importing those products pay the tariffs, which are generally passed on to domestic consumers in the form of higher prices. Those who support tariffs argue that it’s better for U.S. companies to pay this money to the U.S. government than it is to give it to foreign companies.

Governments impose tariffs for a number of reasons, ranging from providing government revenue to protecting infant industries and domestic businesses from foreign competitors to protecting national security and defense sensitive industries to improving terms of trade—or as remedies for perceived trade violations, such as unfair subsidies and dumping by an exporting country.

Many economists oppose tariffs because they lead to higher consumer prices in the domestic country, as well as retaliation by foreign trade partners. Other economists make a case for tariffs. Dating back to the 18th century, most major economists, including Adam Smith, the father of modern economics, offered exceptions to the rule, situations in which they believed that tariffs were justified or beneficial, despite generally opposing trade tariffs. Smith argued that tariffs could be used for national defense and sometimes to establish freer markets. Smith spent the final year of his life working as the commissioner of customs, enforcing tariffs for the Crown.

In his 18th-century treatise, “England’s Treasure by Foreign Trade,” British economist Thomas Mun made the case that tariffs could be used to achieve an “overbalance of trade.” In 1833, Robert Torrens put forth the optimal tariff theory: A nation that’s a large importer could shift the incidence of an import tariff from domestic consumers to foreign exporters. Particularly, a country with monopsony power, such as the United States, could force exporters to lower their prices, which, in turn, would dissuade them from exporting to the United States, because they could earn more by selling their goods elsewhere. An additional benefit to the United States as a monopsony is that, through the imposition of an import tariff, a monopsony can gain an advantage by reducing its demand for a product, which would reduce its trade deficit.

Tariffs have a lengthy history in the United States. First U.S. Secretary of the Treasury Alexander Hamilton advocated for temporary tariffs to protect fledgling U.S. industries. One of the oldest ongoing tariffs in the United States is the sugar tariff of 1789. While it caused economic inefficiencies, it can be considered successful in that it fulfilled its intended goal of protecting the U.S. sugar industry. Sugar cost nearly twice as much in the United States as it did elsewhere in the world market, and yet the U.S. sugar industry survived.

The Trump-era aluminum tariffs were found to have saved the U.S. aluminum industry. In 2010, there were 23 domestic aluminum smelters. But by 2017, only one remained because of the cheap importation of aluminum. The 2018 U.S. aluminum tariffs revived the industry, which has increased domestic production, created thousands of jobs, and attracted billions of dollars in investment.

Some of the Trump administration’s economic advisers recommended levying tariffs as a negotiating technique. A successful example of this policy was that the U.S. levied a tariff against South Korean steel. In response, South Korea voluntarily instituted an export quota, which reduced its exports to the United States. Another use of tariffs in the Trump administration was to reduce the total volume of trade to curtail the U.S. trade deficit with certain countries.

There have been ample historical precedents to support the argument that tariffs can be beneficial in certain instances. Many of the U.S. grievances with China, such as restricted market access, unfair subsidies, poor terms of trade, and national security concerns, match those precedents. U.S. aluminum and steel are two clear examples of industries that are critical to defense infrastructure, so the administration shouldn’t allow them to be gutted by cheaper foreign imports. And finally, as a near monopsony, the largest buyer on the planet, the United States should exercise its market power to dictate the terms of trade. Until China agrees to resolve U.S. trade grievances, the United States should maintain its China import tariffs.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Antonio Graceffo, Ph.D., has spent over 20 years in Asia. He is a graduate of Shanghai University of Sport and holds a China-MBA from Shanghai Jiaotong University. Antonio works as an economics professor and China economic analyst, writing for various international media. Some of his books on China include "Beyond the Belt and Road: China’s Global Economic Expansion" and "A Short Course on the Chinese Economy."