New Tariffs Are Higher Taxes On Americans - and They Are Failed Trade Policy

The Trump Administration today reportedly plans to announce tariffs of 25 percent on $50 billion of imports from China.

Although this trade action is often referred to in shorthand as imposing “tariffs on China,” it is in reality a policy of  “taxes on Americans.” It is American taxpayers -- businesses and workers -- who will literally pay for these tariffs.

In testimony last month, U.S. companies from across the country begged the Administration not to impose these tariffs. Their pleas appear to have fallen on deaf ears.

The new tariffs reflect a major failure of U.S. trade policy under Trump advisor Peter Navarro. Under Section 301, the U.S. government may threaten foreign governments with tariffs if they don’t change an “unfair” trade practice. This threat is supposed to serve as a crowbar to open other markets.

Historically, this approach has rarely worked. As Jim Powell observed in 1990 in response to similar unilateral U.S. trade actions targeting Japan, “it is hard to find a single significant case in which trade retaliation or retaliatory threats have forced open a foreign market.”

Unfortunately, Trump’s trade advisors seem oblivious to history, as indicated when Navarro was asked whether other countries would retaliate against U.S. tariffs on steel and aluminum. His response: “I don’t believe any country in the world is going to retaliate.”

In fact, after the U.S. imposed steel and aluminum tariffs, China, Canada, Mexico, the EU, Japan, and other countries announced plans to retaliate against billions of dollars in American exports. Many of these new tariffs on U.S. exports are scheduled to take effect in July.

In this case, the threat of U.S. tariffs was supposed to force China to change its policies related to technology policy, intellectual property, and innovation. It failed to achieve this goal, and instead was a lose-lose for Americans. U.S. taxpayers will pay more for $50 billion in imports, and U.S. exporters will face new retaliatory duties from China.

As we noted earlier this year, the Trump Administration’s decision to increase taxes on billions of dollars of imports from China brings to mind one of President Reagan’s observations:

“We're in the same boat with our trading partners. If one partner shoots a hole in the boat, does it make sense for the other one to shoot another hole in the boat? Some say, yes, and call that getting tough. Well, I call it stupid.”