US should reform existing China tariffs to target technology transfers, congressional panel hears

Make ‘knowledge-intensive sectors’ a focal point and remove import taxes that offer no strategic value and hit working Americans hard, economist says
If aim is to reduce sales of Chinese firms profiting from ill-gotten technology, coverage of such imports ‘should be increased’

US-China relations

Holly Chikin Washington

Published: 3:20am, 24 May 2024

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Washington should reform existing tariffs to target Chinese technology-related transfers, an American economist told a congressional panel on Thursday.

The US should remove import taxes that offer no strategic value and to ease a burden felt by working Americans, according to Mary Lovely of the Peterson Institute for International Economics in testimony before the US-China Economic and Security Review Commission in Washington.

Asked what types of tariffs should be relied upon in such a reform, Lovely identified “knowledge-intensive sectors” and those “where we think China [and] Chinese companies may have benefited from forced technology transfer,” referring to the technology and pharmaceutical sectors.

“We need to ask: why do we have a tariff on a tablecloth, but you do not have a tariff on a Fitbit or an Apple Watch? Why are we taxing the people who shop at Walmart, but we do not tax the people at the speciality store?” she asked, saying low-income families paid more in import taxes than the wealthy.

Lovely, a former economics professor at Syracuse University, said if the objective of imposing tariffs “is to reduce sales of Chinese firms that have profited from ill-gotten technology, coverage of high-technology imports should be increased”.

Her comments underscored a challenge confronting the administration of US President Joe Biden as it seeks to stake out a tough stance on China with tariffs while tackling high inflation, a major concern as the president seeks re-election in the autumn.

In April, the US consumer price index rose by 0.3 per cent month on month and 3.4 per cent year on year.

On Monday, a top economic planner in Beijing said in a commentary that Washington’s greater use of import tariffs, including those targeting Chinese goods, had led to worse inflation in the US.

The National Development and Reform Commission on its WeChat account described America’s “pursuit of anti-globalisation, decoupling and disconnection” as resulting in a mismatch of global resources as well as of supply and demand that would “inevitably impose further constraints” on reducing US domestic inflation.

Tensions between the world’s two largest economies have again flared after Washington last week announced new tariffs on Chinese-made electric vehicles, advanced batteries, solar cells, steel, aluminium and medical equipment.

Lovely said trade-war tariffs “tax imports that have no obvious relationship to the cause for the original action”, citing previous analysis of the four waves of US tariffs imposed between 2018 and 2019.

“The structure of the trade-war tariffs raises basic questions about their efficacy and the fairness of their design,” she added.

Another economist testifying before the commission on Thursday agreed with Lovely’s recommendation that the list of Section 301 tariffs be reviewed and refined. The tariffs were put in place by the administration of former president Donald Trump.

Trade policies that embody greater clarity in the US position on … China will reduce the uncertainty that dampens the international flow of capital

Mary Lovely

Davin Chor of the Tuck School of Business at Dartmouth College in New Hampshire believed it was time to reconsider “which products exactly we care the most about because they are precisely the most strategic” as well as technology-intensive and knowledge-intensive.

“This is where we want American workers to be. Those are industries that add a lot of value, where we can be world leaders and pay high wages,” he said, adding that non-sensitive tariffs should be lowered.

Furthermore, Lovely said the US should be clearer in communicating strategic intent in its economic relationship with China to make the policies more effective.

“Trade policies that embody greater clarity in the US position on its relationship with China will reduce the uncertainty that dampens the international flow of capital and diminishes global growth prospects,” she added.

Jamieson Greer of the law firm King & Spalding, also testifying on Thursday, said “there is a growing consensus that China should not benefit from permanent normal trade relations (PNTR)” with the US because of the Asian giant’s unfair trade practices and its development into an adversary rather than a collaborator.

“It seems just completely malpractice from a policy perspective for US policymakers to be giving preferential permanent normal trade access to a competitor,” said Greer, who suggested the US revoke China’s PNTR status in phases.

“Be clear about what we want to do and articulate it and not have it be waving in the wind … have Congress itself, who controls trade regulation, come down and say, ‘Here is what we are going to do,’” he added.