The Cost of Trump’s Trade War with China Is Still Adding Up
While President Donald Trump and President Joe Biden differ starkly on many policy issues, they are remarkably similar on trade policy. Notably, President Biden has maintained tariffs on billions of dollars of Chinese imports dating to the Trump administration, all while maintaining a flawed process of granting tariff exclusions to select industries. Those tariffs, put in place when Trump invoked Section 301 of the Trade Act of 1974, have not only failed to achieve their objectives, but have hurt U.S. businesses and consumers along the way. As part of its ongoing review of the Section 301 tariffs, the U.S. Trade Representative (USTR) should listen to the overwhelming majority of comments calling for the end of this failed trade war.
The 301 Review Process
Last year, the USTR initiated a statutory four-year review of the Trump administration’s Section 301 tariffs, asking industries that supported the tariffs to weigh in on their efficacy and potential continuation. Since there was at least one comment in support of every tariff, USTR Katherine Tai found the feedback sufficient to justify the maintenance of the tariffs.
This decision triggered another review, which invited comments from all interested parties. The second phase of the Section 301 review process, launched in October 2022, allowed the public to submit “comments on the effectiveness of the [tariff] actions in achieving the objectives of the investigation, other actions that could be taken, and the effects of such actions on the United States economy, including consumers.” The comment period concluded in January 2023 and yielded 1,497 submissions, which the USTR is currently in the process of reviewing.
We decided to roll up our sleeves and go through those comments ourselves to understand how the Section 301 tariffs have affected Americans. We found that 286 of those submissions were essentially duplicates, written by the same company, same person, and with the same content. Thirty were completely empty, fully redacted comments, as well as comments containing information irrelevant to the tariffs. Excluding those left us with 1,181 comments that can be broken down as follows:
- 4 submissions supported tariffs on some products, but not others;
- 260 submissions supported the continuation of tariffs; and
- 917 submissions favored removal of the tariffs.
Most comments were submitted by firms, with some additional comments from interested individuals, nongovernmental organizations, and academics. Some sectors opposed to the tariffs included outdoor goods, upholstery, and apparel industries. On the other hand, support for the tariffs came from the tungsten, ceramic tile, and forging industries, to name a few. In another post, we outline the views of the few, but loud, voices that are still clamoring for protection.
Who Pays the Cost of the Tariffs
Several studies have examined the cost of the Section 301 tariffs on the U.S. economy. For example, economists Mary Amiti, Stephen J. Redding, and David Weinstein showed that by the end of the first year that the tariffs were in place, U.S. real income declined by $1.4 billion per month. More recently, trade analysts Tori Smith and Tom Lee from the American Action Forum found that U.S. consumers largely bore the brunt of the tariffs, paying a total of $48 billion—with half of this figure paid by U.S. firms that rely on intermediate inputs from China. A recent report by the United States International Trade Commission agreed that the cost of the tariffs was passed through to U.S. importers. Back in 2019, President Biden also agreed, stating, “Trump doesn’t get the basics. He thinks his tariffs are paid for by China. Any beginning econ student at Iowa or Iowa State could tell you the American people are paying his tariffs.”
The comments submitted to the USTR should then come as no surprise: many firms listed how the tariffs have led to a decrease in wages and employment, as well as less investment in domestic research and development (R&D). Firms have also noted the difficulty in sourcing alternative inputs, the added challenges posed by retaliatory tariffs from China, and the lack of concrete change to China’s behavior since the tariffs’ implementation. The costs are varied but significant.
While many respondents acknowledged that COVID-19 and high inflation contributed to layoffs, lower wages, and fewer hirings, tariffs were identified as an important factor in firms’ decisions to reduce their workforces. Some companies even pointed directly to the Section 301 duties as being the driving force behind such measures. The U.S. Fashion Industry Association noted a reduction in employment in the apparel production industry by thirteen thousand people since the implementation of the Section 301 tariffs—a 12 percent reduction in the total workforce. Phillips and Temro Industries Inc., specializing in heating, cooling and electrification systems, placed responsibility on the tariffs for fewer bonuses, a reduction in their workforce by twenty-five people, and the need to move the manufacturing of a product line to China.
Other submissions noted the costs imposed on R&D and competitiveness. iRobot, the company behind the Roomba automated vacuum cleaner, claimed that it “paid tens of millions in tariffs on goods imported from the [Section] 301 tariff lists between Jan. 1, 2021 and Oct. 12, 2021,” the cost of which came out of the R&D budget—in addition to being passed through to consumers. Water Pik, the tooth flossing manufacturer, stated that the tariffs reduced investment in R&D and marketing, resulting in a diluted market share as foreign companies were able to invest in and launch new low-cost substitutes.These missed opportunities will likely not be recouped.
Another consistent issue raised in the submissions was the difficulty, and sometimes impossibility, of finding an alternative for Chinese imports. Such was the case with woven furniture manufacturers that could not find another source of cane webbing. Chattem Chemicals, a company that uses sarcosine salt sourced from China as an input, wrote that a domestic alternative does not exist in sufficient quantities. Furthermore, the third-party alternative that does exist, Dutch sarcosine salt, is double the price of Chinese sarcosine salt. In the end, they were forced to absorb the cost of the tariff as the former was not a realistic, reasonably priced option. Many other advanced product manufacturers highlighted the lack of competitive domestic or third-country sources for inputs, not only because of higher prices but also a lack of manufacturing knowledge. Ultimately, their production was disadvantaged at home and abroad as they had to compete with foreign companies that did not face the same tariffs.
Exporters also felt the pinch from higher costs, increased competition from unaffected foreign companies, and Chinese retaliatory tariffs, which all contributed to a reduced share in global markets for many industries. The American Soybean Association claimed that the trade war not only harmed U.S. soybean producers, but also made foreign competitors more appealing. For example, Brazil benefited from Chinese retaliatory tariffs on U.S. soybeans, which saw a 63 percent drop in exports from January to October 2018. Chinese retaliatory tariffs also reduced market access and raised prices for Alaskan and Pacific Northwest fisherman who found themselves in a less competitive position compared to other seafood exporters such as Russia and Vietnam. With U.S. seafood exports typically accounting for “two-thirds of Alaska seafood sales value,” the United Fishermen of Alaska urged the removal of the tariffs because “maintaining foreign market access is critical for the livelihoods of Alaska fishermen and other seafood sector participants.”
Finally, several firms also argued that the tariff actions were not effective in eliminating or countering China’s actions, policies, and practices that were the impetus for the tariffs in the first place. In addition, several pointed out that their products’ technologies are not strategically important to China’s “Made in China 2025” industrial program, and others noted that they made low-tech products with little to no intellectual property that would be strategically significant to the U.S. economy. Furthermore, as Blazer Brand, a Pennsylvania-based small business that makes trash and recycling tools stated, “we’ve used a mixture of Chinese-made and American-made molds for seven years,” and “our compression-type molds are mostly made in the U.S. As patent holders, it is our responsibility to safeguard intellectual property, if it’s unsafe to make in China a tariff won’t be the driving force behind that decision.” Essentially, U.S. companies are perfectly capable of assessing their own risk.
It’s Time to Dump Trump’s Tariffs
The evidence is clear—the Trump tariffs have failed and the costs on the U.S. economy continue to pile up. Examining all the comments submitted to the USTR for the Section 301 review confirms that harm caused by the tariffs is widespread, significant, and counterproductive to U.S. goals to discipline China’s behavior. Instead of propping up Trump’s failed China policy, the Biden administration should restart a dialogue with China to directly address the source of trade tensions, and bring formal trade complaints to the World Trade Organization to apply pressure and generate international judicial rulings that China will take more seriously than unilateral U.S. tariffs.