Trump’s tariffs on China have cost the US, but they look likely to stay

In his recently released book, Donald Trump’s trade chief champions more protectionism despite continuing reports of the damage caused by the tariffs so far
Unfortunately, the possibility of Trump in the White House again means the odds are against a withdrawal of these trade barriers

David Dodwell

Published: 12:30am, 3 Jul 2023

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For trade liberals who have celebrated the global good arising from seven decades of falling tariff barriers – in particular the significant role this played in lifting hundreds of millions of people worldwide out of grinding poverty – there can be no arch nemesis more hauntingly remembered than Robert Lighthizer.

For those who don’t recall, Lighthizer was a lawyer who spent much of his career protecting US steel workers from international competition before being given wings as Donald Trump’s US trade representative (USTR) to articulate the “America first” mantra. It was Lighthizer who shaped and enthusiastically enforced Trump’s trade war with China (and others) and helped to defenestrate the World Trade Organization’s power to settle international trade arguments.

He was part of the team of smart but blinkered technocrats around Trump who provided heft to the impulsive and incoherent “Make America great again” manifesto. It was a team that saw the world in Manichaean terms of good vs evil.

For trade, that meant imports were bad, exports were good and a trade surplus is essential; that plucky US entrepreneurs were pitched in a relentless, unfair battle against devious foreign cheats; that countries which cut tariffs and opened their markets were doomed to lose.

While US President Joe Biden’s team has done little to unravel this perverse and counterproductive mindset, it was depressing late last month to discover that Lighthizer had been hard at work on a new book, No Trade Is Free, that not only provides an unsurprisingly rose-tinted retrospective of his time in office, but also argues the US needs to get even tougher on trade, and China in particular.

He believes the US should build tariff walls higher and restrict inward and outward investment. He wants China to be stripped of its normal trade status. He concedes this will impose costs on the US, but insists that these moves are needed to curb China’s rise and to rebuild US manufacturing.

Most troubling, Lighthizer, who has been chair of the Centre for American Trade at the America First Policy Institute since September 2021, has clearly defined what a second term of Trumpian “America first” trade policy would look like if Trump gets lucky in next year’s presidential elections.

In one respect, Lighthizer’s timing is unfortunate. He has come out guns blazing to defend the necessity of high tariffs and protectionism not long after the US International Trade Commission (ITC) completed a 318-page audit of how his trade war, built around Section 232 grounds of defending national security and Section 301 grounds of unfair trade, has affected the US economy. This coincides with the USTR’s review of the past four years of Trump tariffs.

The ITC found that US imports from China have fallen where the tariffs were applied but noted that “US importers have borne almost the full burden of Section 301 tariffs”. The ITC’s conclusions go against Trump’s claim that China was the most hurt by the tariffs, instead finding that, as the US Chamber of Commerce and economists have asserted, the tariffs harmed US companies.

The US Tax Foundation has noted the tariffs were “equivalent to one of the largest tax increases in decades”, reducing long-run GDP growth by 0.22 per cent and cutting 173,000 full-time equivalent jobs.

14:45

An unwinnable conflict? The US-China trade war, 5 years on

Meanwhile, a report by the Coalition for a Prosperous America on Section 301 tariffs showed that the fall in China’s share of US imports benefited other countries such as Mexico and Vietnam. Compared to 2018, China’s exports to the US fell by US$1.8 billion to around US$536 billion last year, while Vietnam’s rose by US$78 billion to US$127.5 billion and Mexico’s by US$111 billion to US$455 billion.

In a comprehensive analysis of the submissions to the USTR tariff review, the New York-based Council on Foreign Relations (CFR) found the tariffs “not only failed to achieve their objectives, but have hurt US businesses and consumers along the way”. It noted that the harm arising from the tariffs was “widespread, significant and counterproductive”.

After sifting out duplicates and those with fully redacted submissions, the CFR found that 917 out of 1,181 (more than 77 per cent) supported tariff removal, while 260 submissions supported their continuation. Most of the comments came from companies, with those supporting continuation tending to be firms facing keen international competition, while many of those wanting the tariffs to be removed were “downstream” companies struggling with the additional costs arising from the tariffs. The CFR concluded “the Trump tariffs have failed and the costs on the US economy continue to pile up”.

Is US sincere in wanting better relations with China? Its actions say not

The ITC audit and the USTR review are intended to help the Biden administration decide whether to keep the Trump tariffs. With Washington maintaining that Chinese trade practices remain “unfair, harmful and anticompetitive”, the issue will not be whether Biden should stay tough on China, but whether the tariff war is helping or hindering.

Almost certainly, the shadow cast by Lighthizer’s book – and the gnawing anxiety this creates around the possibility that Trump and his team might be back in power next year – means that Trump’s tariffs are more than likely to stay in place. The difference between “de-risking” and “decoupling” is unlikely to be large.

That will undoubtedly please Lighthizer, but what it means for US companies and consumers bearing the tariff costs, and for those of us concerned about the long-term harm to global trade, is another matter.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades.