In light of high inflation and inflation , the Biden administration announced it’s considering dropping its current tariffs on Chinese imports to ease inflationary pressures. The tariffs have indeed hurt both U.S. industry and workers. Another consequence of the U.S. imposed tariffs is that they invited retaliatory tariffs, primarily from China, on U.S. exports. Retaliatory tariffs have further hurt American firms and workers, with certain geographies and industries bearing the brunt of the impact.
The Biden administration’s reevaluation of tariffs on Chinese imports comes because the first tranche of Section 301 tariffs on $34 billion worth of goods are set to expire on July 6. Another tranche on $16 billion will expire on August 23, and a 3rd on approximately $100 billion on September 4. The expirations are thanks to the four-year time limit on the tariffs under Section 301, after which the tariffs expire unless a review leads to extension. Whether the Biden administration extends the tariffs, modifies the tariffs, or allows them to expire after the us Trade Representative (USTR) review remains unknown.
In total, China focused its retaliatory tariffs on agricultural and seafood products, and while tariffs were imposed on auto exports for a brief duration, they were lifted and not reimposed. As China represents the U.S.’s largest agricultural export market, an outsized percentage of agricultural goods, including soybean and pork exports, were targeted by the retaliatory tariffs. Across all retaliatory tariffs (including retaliation from other jurisdictions), 8.7 percent ($134 billion) of U.S. exports were targeted by retaliatory tariffs, including $30 billion in agricultural products.
For example, in response to the U.S. imposed tariffs on washing machines and solar panels, China imposed tariffs of 179 percent on U.S. sorghum exports—resulting in an instantaneous halt of shipments and harm to the U.S. industry. While the sorghum tariffs were promptly removed, tariffs on billions of dollars’ worth of other exports remain as a part of the escalated trade war. In response to the U.S. Section 301 tariffs targeting $350 billion of Chinese imports, China imposed tariffs on quite $100 billion of U.S. exports starting from 2.5 to 25 percent, and in response to Section 232 tariffs, China imposed tariffs on $2.5 billion of U.S. exports starting from 15 to 25 percent.
A U.S. Department of Agriculture study found the retaliatory tariffs reduced U.S. exports of agricultural products by $27 billion from mid-2018 when the tariffs were imposed to the top of 2019. Soybeans particularly accounted for the majority of the decline, at 71 percent, followed by sorghum and pork. The losses were primarily concentrated in states exporting the products, like Iowa and Kansas. thanks to the tariffs, the U.S. lost market share to Brazil, which increased its exports of agricultural products to China by $8 billion in 2018. Another analysis found in total, the U.S. lost nearly $16 billion in trade with retaliatory countries within the agricultural market alone.
As a part of the U.S.-China Phase One Agreement, China agreed to get nearly $40 billion of U.S. agricultural products in 2020 and 2021, cut its retaliatory tariffs in half, and exempt a spread of agricultural and energy products from the retaliatory tariffs. Following the exemptions, U.S. exports to China of the affected goods rebounded significantly, rising from a coffee of 16 percent of market share in 2019 to 26 percent from March 2020 to February 2021. Although market share remains below 2017 levels, U.S. exports to China likely would have increased more had it not been for the COVID-19 pandemic.
Automobile exports were also suffering from the retaliatory tariffs. Using county-level data, economist Michael Waugh found that a 1 percentage point increase in exposure to the Chinese retaliatory tariffs led to a one percentage point decrease in auto sales through 2018. He also found some spillover effects into other markets: county-wide retail employment declined thanks to retaliatory tariff exposure. Affected firms reconfigured their supply chains and laid off workers. The affected workers will reduce their spending elsewhere within the local economy, resulting in county-wide negative impacts. Another analysis found that by the top of 2020, auto exports had still not recovered, despite China’s purchasing commitments within the Phase One agreement.
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Looking at aggregate economic impacts, Pablo Fahjelbaum and his co-authors found the retaliatory tariffs caused total U.S. exports to fall by 9.9 percent, reducing U.S. GDP by 0.04 percent. Mary Amiti and her coauthors similarly identified an outsized negative effect from the retaliatory tariffs. Their analysis found a ten percent increase in tariffs caused the value of U.S. exports to say no by $32 billion, costing U.S. firms about $2.4 billion per month in lost exports. Both quantities and costs of exports fell, together analysis found the export prices declined by nearly 50 percent after one year. instead of pass on the tariffs to Chinese consumers, most U.S. firms simply bore the prices .
The trade war has not yielded any tangible benefits for U.S. firms and workers. While the U.S. tariffs were intended to guard American industries, they need largely hurt the U.S. economy. and that they incentivized foreign countries to retaliate with their owns tariffs, which have damaged the economy even more. The Biden administration should provide relief to U.S. industries and workers by bringing the U.S.-China trade war to an end.