Category Archives: Trade

A Tacit Admission of Who Pays for Tariffs

Over at the Washington Post, Heather Long has a writeup on President Trump’s partial delay, until near the end of the holiday season, of new tariffs on popular Chinese-made consumer products. I found this quote interesting:

“The decision to delay new tariffs on Chinese-made toys, smartphones, laptops and other popular holiday gifts is a tacit admission that consumers pay for tariffs, not Chinese producers,” said Ryan Young, a senior fellow at the Competitive Enterprise Institute.

Read the rest of the otherwise-excellent piece here.

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CEI Experts: Delay on China Tariffs Shows Real Burden is on Consumers

Press statement, originally posted at cei.org.

On news today that the US Trade Representative will delay new tariffs on some consumer items until Dec. 15, as well as exclude some products from tariffs. Competitive Enterprise Institute Senior Fellow Ryan Youngand Vice President for Strategy Iain Murray pointed to the tacit admission that consumers are, in fact, burdened by tariffs, contrary to what the Trump administration has maintained.

Senior Fellow Ryan Young said:

“The decision to delay new tariffs on Chinese-made toys, smartphones, laptops, and other popular holiday gifts is a tacit admission that consumers pay for tariffs, not Chinese producers. The administration has been saying otherwise, but it is good to see that they do not believe their own words. Several rounds of China tariffs have so far failed to encourage the Chinese government to make needed reforms. Beijing has instead consistently retaliated with its own trade barriers, hurting the U.S. economy as well as their own. Tariffs do not work. It is time to scrap them in favor of more effective policies. Engaging the WTO dispute resolution process is one such policy and one where the U.S. has an 85 percent success rate. Rejoining the Trans-Pacific Partnership would add to international pressure on Beijing to rein in its illiberal policies. At the very least, Congress needs to take back the tariff-making authority it delegated away to the president back in the 1960s and 1970s.”

Vice President for Strategy Iain Murray said:

“The administration appears to have decided that Christmas is a health, safety, or national security issue, using powers meant for those purposes to delay tariffs on the sort of products Americans like to gift each other on that holiday. At least that recognizes that these tariffs would have been a de facto tax on holiday shopping. The decision also underlines how the administration is abusing power granted it by Congress – power Congress should reclaim urgently.”

Related report: Common Myths and Facts about Trade

The Left Hand Knows Not What the Right Hand Is Doing

Via Politico‘s Morning Trade newsletter: “A new analysis of Trump’s USMCA shows that more than half of the text is identical to the Trans-Pacific Partnership,which Trump withdrew from on his third day in office.”

The study is “How Much of the Transpacific Partnership is in the United States-Mexico-Canada Agreement?,” by Wolfgang Alschner and Rama Panford-Walsh, both of the University of Ottawa.

Tariffs fail to move China, Congress Should Revoke Pres. Trump’s Trade Authority

This is a press statement from CEI. Originally posted here.

President Trump announced a new round of tariffs on China today, pledging to levy a 10 percent tariff on $300 billion of Chinese goods on September 1.

CEI senior fellow Ryan Young said:

“President Trump’s latest China tariffs will begin to affect consumer prices just in time for the holiday season, and will likely encourage a round of retaliatory actions from Beijing. Previous tariffs have repeatedly failed to spark reforms from China’s government, and this iteration will be no different.

“It is likely not a coincidence that President Trump announced the new tariffs within hours of Congress beginning its August recess. Congress is out of session until September 9, more than a week after the tariffs are set to take effect. Multiple bills to return tariff-making authority to Congress have growing bipartisan support. Congress should pass one of them upon its return and prevent President Trump’s tariffs from causing further economic and diplomatic harm to the United States.”

Read more:

A Yardstick for Reform

While recently revisiting my old friend the Export-Import Bank, which is up for reauthorization this September, I was reminded of a quote from Nobel laureate Ronald Coase’s 1975 essay “Economists and Public Policy,” which appears on p. 57 of 1995’s Essays on Economics and Economists:

An economist who, by his efforts, is able to postpone by a week a government program which wastes $100 million a year (which I would call a modest success) has, by his action, earned his salary for the whole of his life.

By this measure, the Ex-Im Bank controversy over the last several years was a success, though there is more work to be done. In 2014 the agency’s authorization lapsed for nearly a year, and after that it was limited to small transactions until May 2019. The total savings run into the tens of billions of dollars.

From the Archives: Peter Navarro on China Trade

Trump trade advisor Peter Navarro is part of the travel team for upcoming U.S.-China trade negotiations. For an idea of what he will add to the discussion, see his book The Coming China Wars. I have also written about some of his economic ideas in the past:

Trump Threatens up to 25 Percent Tariff on Mexican Goods, Jeopardizes NAFTA/USMCA

Things have been moving quickly on President Trump’s top legislative priority, the NAFTA/USMCA trade agreement. The key was rescinding steel and aluminum tariffs against Canada and Mexico. On Wednesday, Canadian Prime Minister Justin Trudeau moved to introduce the agreement to Canada’s legislature for ratification, prompting a Thursday visit from Vice President Mike Pence. Also on Thursday, Mexican President Andres Manuel Lopez Obrador introduced NAFTA/USMCA in Mexico’s Senate. He is requesting that the body, on recess until September, hold a special session to ratify it.

Within hours of Lopez Obrador’s announcement, President Trump may have torpedoed his own agreement. Shortly after markets closed, he threatened, via Twitter, a new tariff against Mexico that would dwarf the steel and aluminum tariffs:

1/2: On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..

2/2:….at which time the Tariffs will be removed. Details from the White House to follow.

On July 1, the 5 percent tariff would rise to 10 percent. It would then rise by an additional 5 percent at the beginning of each month until reaching 25 percent on October 1. It would remain there until President Trump is satisfied with Mexico’s immigration policies. He did not set specific criteria for Mexico to meet. And as mentioned earlier, Mexico’s Senate is out of session until September. But the administration’s statement indicates that this threat isn’t entirely about immigration (capitalization of “tariff” and typewriter-era extra spacing between sentences in original):

If Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods.  Companies that relocate to the United States will not pay the Tariffs or be affected in any way.

By way of context, this tariff would be nearly twice as large as the recent 25 percent tariff on $200 billion of Chinese goods. Mexico annually exports roughly $346.5 billion of goods to the United States.

NAFTA and the NAFTA 2.0/USMCA both require near-zero tariffs among the three member countries. Trump has invoked the Jimmy Carter-era 1977 International Emergency Economic Powers Act as legal authority for the tariffs, claiming that that bill’s emergency powers supersede possible NAFTA violations.

As I’ve mentioned before, Trump has a habit of using dramatic last-minute threats as a negotiating tactic. Sometimes he follows through, as with the recent 25 percent tariff on $200 billion of Chinese goods. Sometimes he withdraws, as he did with a threat to close the entire U.S.-Mexican border, and an April threat of a 25 percent tariff on Mexican-assembled automobiles—which are often made largely of U.S.-made parts.

For obvious reasons, a new tariff against Mexico will not make its government more likely to ratify NAFTA/USMCA. Tariffs are usually met with retaliatory tariffs, not the policy action Trump wants. The U.S. economy is risking yet another instance of double damage from President Trump’s announcement—once from his tariffs, and again from retaliatory tariffs.

Further complicating matters, Mexican President Lopez Obrador largely shares Trump’s negative view of free trade. His support of NAFTA/USMCA is not deeply held. His going along with the agreement is largely a kindness to his predecessor, Enrique Peña-Nieto, who negotiated the agreement and signed it on his final day in office. Lopez Obrador’s NAFTA/USMCA support is easily lost, and this tariff gives him an easy out.

The tariff also complicates matters in America. Also on Thursday, President Trump issued a Statement of Administrative Action. This opens a 30-day waiting period, after which Trump can send NAFTA/USMCA to Congress at any time for a mandatory ratification vote within a set period (Politico has a handy timeline). Members from both parties opposed the steel and aluminum tariffs, and they will likely oppose the new tariff, which is potentially much larger. If Congress is required to vote, it may well vote no due to the new Mexico tariffs.

Democrats already hold the upper hand in negotiations due to the administration’s high prioritization of a low-stakes agreement; USMCA contains no major changes to trade policy. Even without Trump’s tariff threat, they could hold up the agreement to add trade-unrelated provisions to benefit favored labor and environmental constituencies. Or they could condition ratification on a more important matter, such as must-pass appropriations bills or other Democratic policy priorities such as health care or the minimum wage.

A new tariff is Trump giving Democrats free ammunition to hold up not just NAFTA/USMCA, but other administration priorities as well.

We’ll find out by June 10th if Trump walks back a major economic and political mistake, or goes through with it.