US Tariffs on Metals, Some China Goods Raised American Prices

Date: Thursday, March 16, 2023
Source: Bloomberg

US importers bore almost the entire burden of tariffs that President Donald Trump placed on more than $300 billion in Chinese goods, raising the cost of goods bought by American companies, a report by an independent US government agency found.

The US International Trade Commission, a bipartisan entity that analyzes trade issues, found an almost one-to-one increase in the price of US imports following the so-called section 301 tariffs, it said in a report on Wednesday. The report came in response to a directive from Congress as part of a law passed last year.

The conclusions back the longtime assertion of US Chamber of Commerce and independent academic economists that the cost of the tariffs hurt American firms rather than those in China, and contradict Trump’s claim that his trade partner paid the ultimate cost of the duties.

President Joe Biden’s administration has kept the tariffs on imports of Chinese goods in place for more than two years and is currently undertaking a review of the duties to evaluate their effectiveness and decide if they should continue.

Prices for imports from China across some of the most affected industries — including imports of computer equipment, semiconductors, furniture and audio and video equipment — increased as much as 25% in 2021, according to the agency. Prices of US-produced goods in some industries rose 3% to 4%.

Imports of the affected products from China declined to about $265 billion in 2021 from $311 billion in 2017, the year before the duties were imposed, the ITC said.

The tariffs were imposed by the Trump administration under section 301 of the Trade Act of 1974 starting in 2018 based on China’s alleged intellectual property theft and forced transfer technology.

Across all affected sectors, the duties lowered Chinese imports by 13% during 2018 to 2021, raised US output by 0.4% and increased prices of US products by 0.2%. At a three-day public ITC hearing last July, producers that compete with imports from China spoke in support of the tariffs, with those such as manufacturers who rely on the affected imports as inputs opposing them.

Business groups, unions, economists and politicians have fiercely debated the merits of the trade war that Trump launched against China in 2018. The tariffs disrupted existing trade flows, turning companies and workers into winners and losers based on their location in the economy and supply chain.

The ITC also looked at duties on inbound steel and aluminum shipments under section 232 of the Trade Expansion Act of 1962 in the same year, tariffs instituted to protect national security. It found that they reduced imports of affected steel products by 24%, raised US prices by 2.4% and increased American production by 1.9%. Aluminum imports fell 31%, while prices in the US rose 1.6% and local output climbed 3.6%. Production in downstream industries using steel and aluminum, such as construction and manufacturing, decreased, while prices rose.

“The section 232 tariffs are applied to counter the very real threat to the existence of US industry caused by non-market excess capacity in countries such as China,” said Adam Hodge, a spokesman for the US Trade Representative, adding that the US will continue to work with allies and partners “to defend our workers and market-oriented businesses from China’s anti-competitive, non-market practices.”

Incomplete Picture

Jason E. Kearns, one of the ITC’s own commissioners, expressed concerns regarding the agency’s report.

In a section of “additional views” attached to the report, he said that it paints an incomplete picture because it doesn’t describe or estimate the impact of China’s unfair trade practices for years that led Trump to impose the tariffs, poor results in getting Beijing to change its behavior prior to the duties, or the cost of failing to respond to China’s behavior.

Other commissioners didn’t share his concerns, saying that such a probe would have been outside the scope of the focus of trade, production and price impacts form the tariffs that Congress asked the ITC to analyze.

Trump started imposing the section 301 tariffs in July 2018. The duties span imports from industrial inputs, such as microchips and chemicals, to consumer merchandise including apparel and furniture.

301 Review

The US Trade Representative’s last year began a review of the tariffs, which would have started to automatically expire in the middle of last year absent an evaluation of their impact. USTR got hundreds of requests for the tariffs to continue and has kept them in places as it undertakes the review. The administration received thousands of public responses to a request for comment before the window to do so closed in mid-January.

“The administration is determining next steps on the section 301 tariffs and will take these relevant, but incomplete, findings into account,” the USTR’s Hodge said. “Our ongoing review will examine the effectiveness of the section 301 tariffs in addressing China’s unfair, harmful and anti-competitive acts, policies, and practices, as well as the impact on the US economy, including consumers.”

Some Biden administration officials last year argued that reducing tariffs on household items could help ease US inflation, but USTR Katherine Tai has underlined how the tariffs provide leverage to persuade China to change what the US considers unfair practices.

In December, the World Trade Organization said the US violated international trade rules when it imposed the steel and aluminum tariffs under Trump starting in March 2018, a decision Washington rejected and stated won’t lead to a removal of the duties.

The US and European Union are said to be considering new tariffs on Chinese steel and aluminum as part of a broader bid to fight carbon emissions. That’s a change from the Trump administration’s reliance on the WTO’s national-security loophole in favor of another WTO exception for trade restrictions imposed in the name of protecting the environment.


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