Trump’s Proposed Great Chinese Tariff Wall

by Roger Alford

Chinese Great WallUnfortunately Republican primary voters have made the remarkable choice to take Donald Trump seriously, and therefore we now have little choice but to contemplate the ramifications of a Trump presidency for United States foreign policy.

In terms of U.S. trade, Donald Trump would be an unmitigated disaster. Trump, of course, has a penchant for incendiary comments, and his statements regarding international trade are as ludicrous and uninformed as much of his other foreign policy positions. Almost everything Trumps says about Chinese trade is wrong. “We don’t win anymore,” “They are taking our jobs,” and “They don’t play fair.” These are all platitudes without substance, but a significant percentage of Americans are buying his snake oil. The answer to our Chinese problem, according to Trump, is a trade war. “The only power that we have with China is massive trade,” Trump says, so we should tax China. “I would tax China on products coming in. Let me tell you what the tax should be… the tax should be 45 percent.” The solution to our trade problems with China, he thinks, is to build a tariff wall. Build a wall and make them pay.

Trump thinks that Mexico will pay for the Mexican wall, and he thinks that China will pay for a Chinese tariff wall. But he is wrong. The American people would pay for the wall with higher consumer prices and reduced American exports.

First, how would such a tariff increase impact American consumers? A 45 percent tariff on Chinese products would be an indirect tax on American consumers. On average, the United States imposes a 3.5 percent tariff on foreign products. Over 20 percent of all United States imports come from China, with a total value of over $500 billion. At 3.5 percent, the tariff on $500 billion worth of Chinese imports is $17.5 billion. At 45 percent, the tariff would be $225 billion. That’s an increase of over 1,186 percent. In other words, assuming Chinese imports continued at their current rate, Donald Trump’s proposed tariff wall with China would reflect an indirect tax on American consumers of over $200 billion. A tax increase of over $200 billion would be one of the largest in American history, greater than the combined tax increases imposed by Presidents Obama, Clinton, and Carter.

To be more concrete, as detailed here, the United States imports from China over $135 billion worth of electronic equipment, over $100 billion worth of machinery, over $30 billion worth of furniture, over $25 billion worth of toys, and over $18 billion worth of footwear. All of us routinely purchase Chinese products, and we each would face a dramatic price increase as the 45 percent tariff is passed on to consumers.

Second, how would the tariff increase impact American exporters? Trump’s tariff wall is undoubtedly illegal under the WTO rules. The rules were designed to make sure that countries keep their trade promises. Donald Trump’s proposal is a blatant breach of our promise to keep tariffs low. All of our tariff rates are “bound,” meaning we have committed by treaty not to increase beyond the bound rate. Every imported product has a bound tariff rate, and under GATT Article II, any tariff above that ceiling violates the WTO rules.

Trump’s proposed tariff wall would break United States’ promise to maintain its current tariff rates. China would have the right to bring an action before the WTO to challenge the 45 percent tariff increase. Just as the United States would undoubtedly win if China tried to do something similar to us, China would undoubtedly win if it challenged the Trump tariff wall. The WTO would demand that the United States keep its tariff promises, and authorize China to raise tariffs on United States’ products coming into China equal to the harm the United States caused to China.

In other words, if China suffers over $200 billion worth of harm from increased tariffs on Chinese products, the WTO would authorize China to increase tariffs on U.S. products by the same amount. Over 7 percent of all United States exports go to China, with total U.S. exports to China exceeding $120 billion.

So if China is hit with over $200 billion worth of tariff increases, China would be authorized to impose over $200 billion worth of tariff increases on $120 billion worth of American exports. Our major exports to China include soybeans ($15 billion), civilian aircraft ($8.4 billion), passenger vehicles ($5.2 billion), copper ($3 billion), corn ($1.3 billion), and coal ($1.2 billion). American workers with jobs in these industries would be severely injured by these WTO-authorized Chinese countermeasures. All those American auto workers, and corn and soybean farmers, and coal miners who support Trump would see their Chinese export market shrink. A tariff increase this dramatic could effectively close the Chinese market to American exports. And it would be completely proper for China to do this to compensate it for our illegal behavior.

In short, the great Chinese tariff wall that Donald Trump proposes to build would severely injure American consumers, making the price of all Chinese products dramatically higher. It also would severely injure American workers, as U.S. exports to the Chinese market would sharply contract. The economic harm that his tariff wall would have on the average American is shocking. Yet his supporters remain blissfully unaware that the United States would not win if it enters a trade war with China.

http://opiniojuris.org/2016/03/01/trumps-proposed-great-chinese-tariff-wall/

7 Responses

  1. Thanks for the post . I agree with the respectable author of the post : it won’t be simple as an apple , such tariffs proposed by Trump . Yet , the real and more realistic issue , is the currency war . The Chinese are weakening constantly their currency ( the Yuan ) what is causing their exportation to the US and globally ,to be more profitable , and , causing of course , the US exportation to China , to become , less profitable ( The Yuan’s rate is fixed by central bank , and not traded ) .

    One can read here on it :

    http://theweek.com/articles/599576/donald-trump-right-pick-trade-war-china-just-wrong-strategy

    http://www.reuters.com/article/us-china-markets-yuan-idUSKCN0QG04U20150811

    Thanks

    P.S : The author , presume, in advance , and justly , correctly , that , increasing tariffs , shall affect the prices of products in the US , but : can be overcome with creative methods , it is realistic indeed , yet , not a total and not avoidable fate !!

  2. El roam:

    Thanks for the comment. It is a bit dated, but there is a good discussion by Alan Sykes and Robert Staiger on Chinese currency manipulation and its consistency with WTO Rules. Details here.

  3. Roger , very intersting link , thanks ….

  4. Today, he says that he is bound by the law

  5. wonder if he realizes that the law requires prosecution of those who authorized or abetted war crimes, like Bush, Cheney, Rice, et al.

  6. Thanks for the post, aside from the currency devaluation that seems to upset people even though it’s a benefit for US consumers because it makes our dollar stronger when it comes to buying products “made” in China, the trade deficit is a completely bogus number to begin with.

    Balance of trade is measured by value of goods imported vs. value of goods exported, in China’s case where they are performing final assembly of a product they see the full retail value of the export while only showing the raw material cost of the import and if that import is not from the US the value is ignored.

    For example, an iPhone 6S is “made in China” and is exported to the US at full retail price (~$700) even though only $11 dollars of labor was added in China, while the $51 screen and $37 processor comes from Taiwan, this $88 in trade (screen and processor) doesn’t show up as trade between the US and Taiwan, even though the US has effectively imported them from Taiwan through China. So when people say the US trade deficit with China is $500B it doesn’t mean we’ve sent $500B to China, it means products with globally sourced components that were assembled in China were imported to the US and sold for $500B

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