In 2018 the Trump administration imposed sweeping taxes on Americans who import goods from China following an investigation into China’s policies related to technology transfer, intellectual property, and innovation. Unfortunately, but predictably, they’ve failed to work.
Trump’s tariffs were imposed under Section 301 of the Trade Act of 1974. Section 301 tariffs are designed to be a temporary measure to encourage other countries to change their trade policies, and as such last a maximum of four years unless the administration decides to extend them following a review by the Office of the U.S. Trade Representative (USTR). Specifically, USTR must review:
- The effectiveness of the Section 301 tariffs in meeting their objectives
- The impact of the tariffs on the U.S. economy, including consumers
- Other actions that could be taken
Both Trump and Biden officials have repeatedly pointed out that the Section 301 tariffs have failed to meet their alleged objectives:
- USTR, November 20, 2018: “China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation.”
- Amb. Robert Lighthizer, March 12, 2019: “China should have responded to the findings in the Section 301 investigation and the U.S. tariff actions by undertaking the necessary economic and policy reforms needed to end its trade distortive practices. Instead, China retaliated with tariffs on U.S. products.”
- Council of Economic Advisers, March 2019: “Rather than changing its practices, China announced retaliatory tariffs on U.S. goods.”
- Council of Economic Advisers, February 2020: “The Administration first imposed tariffs on imports from China based on the findings of the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The Administration then took supplemental action in 2018 and 2019 in response to China’s imposition of retaliatory tariffs and failure to eliminate these unfair acts, policies, and practices.”
- Council of Economic Advisers, January 2021: “The United States maintains significant tariffs on $370 billion worth of Chinese imports because China has not ended all of its unfair trade practices.”
- USTR, March 2021: “The Biden Administration is committed to using all available tools to take on the range of China’s unfair trade practices that continue to harm U.S. workers and businesses.”
- USTR, February 2022: “China fell far short of implementing its commitments to purchase U.S. goods and services in calendar year 2020 and that China is similarly not on track to implement its commitments to purchase U.S. goods and services in calendar year 2021.”
In addition to being ineffective, the tariffs have also been costly to the U.S. economy and consumers. One study found that Trump’s tariffs depressed U.S. equity prices by 6 percent, translating to a $1.7 trillion loss in stock market capitalization. Another found that the cost of U.S. tariffs fell entirely on importers and consumers. So far, the so-called China tariffs have directly cost U.S. taxpayers $128.9 billion, an average of about $1,000 per household.
If President Biden extends these tariffs beyond their intended four-year expiration date, he will also be guilty of violating his promise not to increase taxes on Americans earning less than $400,000 per year. Tariffs are regressive, hurting poorer Americans more than the wealthy.
Fortunately, there are plenty of alternatives to the Trump administration’s broad-based tariffs for USTR to evaluate. National Taxpayers Union Foundation has summarized several alternatives, including cutting tariffs on imports from our allies. Mercatus Center scholars Donald Boudreaux and Dan Griswold have endorsed a targeted approach against specific infractions instead of the “lose-lose” policy of escalating tariffs. The Cato Institute has proposed that the United States join with our allies to file more World Trade Organization (WTO) complaints against China. American Enterprise Institute Senior Fellow Derek Scissors has called for stricter export controls. The R Street Institute's Clark Packard has highlighted the need to out-compete China.
Regardless of which approach is best, there’s no denying that Trump’s Section 301 tariffs have cost Americans billions of dollars while failing to achieve their primary policy aims. The Biden administration should allow the tariffs to end as scheduled and pursue alternatives that are more likely to benefit the United States.