Depending on your source, definitions of the word tariff vary, but virtually all of them include the word “tax” or “duty.” Most etymologists say the word comes from the Italian tariffa, or “list of prices, book of rates,” derived in turn from the Arabic ta’rif, meaning “making known” or “to define.” For convenience sake we will go with Wikipedia’s simple definition: “A tariff is a tax on imports or exports between sovereign states.”
Definitions aside, at issue regarding the current and escalating trade war with China is Section 232 of the Trade Expansion Act of 1962. As I wrote in an editorial in June 2018: “Section 232 permits a president to investigate and determine if the import of certain goods threatens the security of the U.S. A president could then conclude whether certain imports seriously impaired national-security interests enough to decide whether tariffs were in order. With the help of Commerce Secretary Wilbur Ross, the Trump administration has decided to invoke Section 232 and impose tariffs on steel and aluminum.”
In the April 2019 issue, this column outlined a historical backdrop for the ongoing trade and tariff talks between the U.S. and China. This includes the imposition of tariffs on Chinese goods coming into the U.S., specifically tariffs on aluminum and steel. Now things have taken an unexpected twist. On May 10, the Trump administration decided to raise tariffs on an additional $200 billion in imports from China from 10% to 25%. Although trade talks between the two countries are scheduled to continue despite the increases, a visit to the website of the Office of the U.S. Trade Representative (Robert Lighthizer) is strangely silent on the subject, as were the websites of the U.S. Treasury Department and the White House.
During my nearly 13 years writing this column for FORGE since its inception, I have at times been a harsh critic of how the Chinese do business on the global stage and in global markets. At least some questionable Chinese policies I complained about a decade ago –
such as flagrant intellectual-property theft, cybertheft, currency manipulation and self-serving joint-venture policies – are still on the negotiating table. I have no problem with the Trump administration playing tough with Chinese trade practices, but I’m not convinced tariffs are the answer.
When the world’s two largest economies go to the mat on tariffs and trade, the implications to bilateral and global trade relations are enormous. In the case of China and the U.S., a back-and-forth ratcheting of tariffs has victimized U.S. producers of farm products, building materials, consumer goods, transportation equipment, electronics, natural resources and other goods. Similarly, the U.S. has imposed tariffs on thousands of Chinese goods including food products, basic steel and aluminum, building materials, consumer goods, textiles and fabrics.
The sad part, unbelievably, is that President Trump appears not to understand how tariffs work and who pays them. In a May 10 tweet, the president wrote the following: “…Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars’ worth of goods & products. These massive payments go directly to the Treasury of the U.S....”
This is glaringly and alarmingly incorrect. The president would have us believe that China’s office of the exchequer is obligingly transferring $250 million into the U.S. Treasury for every $1 billion of tariffed goods that China exports to the U.S. Again, this is flagrantly untrue.
The truth is that the tariffs are generally paid to the custom’s service by the company that ordered the tariffed goods. The extra costs are born in some combination by the company, its employees, shareholders and, ultimately, consumers.
By all means, let’s play tough with China and its trade policies, but increasing tariffs and broadening their scope are not the answer.