Donald Trump’s new trade war threat with China should make us all nervous

These arguments have been supported by almost every serious analysis of the impact of the tariffs, the cost of which has been borne largely by US companies and their consumers. It is estimated that the tariffs and China’s retaliatory tariffs have cost American businesses and consumers over $160 billion.

For example, the Cato Institute has calculated the cost to the US apparel and furniture industries to be more than $1 billion a year each.

The US Congressional Budget Office (in 2020) put the cost at $1277 per US household, and other studies put the cost of economic growth at about one percentage point per year.

None of the studies have shown a net benefit of tariffs.

If the goal of the tariffs was to reduce America’s trade deficit with China, it didn’t work either. Last year’s deficit was slightly larger than that of 2017, just before Trump launched his trade war, even though China accounts for a smaller share of total US imports than it did then.

The trade truce Trump announced in 2020 was also a smash. As part of the “Phase One” deal that averted the threat of more and higher tariffs, China agreed to buy $200 billion more US products over the next two years than it did in 2017. It didn’t and stayed well below its pre-pandemic commitments.

America First puts the rest of the world last.

The tariffs, which were introduced in four waves between 2018 and 2020 with tariff rates up to 25 percent and an average rate of about 20 percent, have been maintained by the Biden administration, although it has increased the number of exclusions from them.

While the administration continues to review them and acknowledge their negative impact on the US economy, it sees them as leverage in the broader economic and geopolitical tensions it has with China.

Removing it would lower the US inflation rate slightly, but domestic political considerations also play a role. Measures against China, no matter how ineffective, are popular in the US, and not just among Trump’s MAGA supporters, or more broadly Republicans. That may have prompted Trump to get bigger and tougher with his new campaign for the presidency.

In May last year, the USTR called on parties wanting to keep the tariffs and received several hundred. Without these filings, the tariffs would have reached their four-year anniversary and would have become obsolete.

It then opened the review to wider feedback, resulting in around 1500 submissions. Most oppose the continuation of the tariffs or call for a sharp reduction in the range of products they cover.

The USTR review looks at the effectiveness of the tariffs in eliminating or countering China’s acts, policies and practices related to technology transfer, intellectual property and innovation and their impact on the US economy, including US consumers.

The simple conclusion about the issues raised by the review would be that they have proved quite ineffective in changing China’s actions and policies, and have caused significant damage to the US economy and consumers.

There may be a final decision this year in the International Trade Court cases over whether the Trump administration has met its legal obligation to consult the public and assess the impact of its actions on the economy. (The USTR, the defendant in this case, has argued that he simply followed the President’s orders). Any party would be free to appeal, which is likely to be independent of the outcome.

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The USTR’s own review can be publicly filed until May of this year, but the practical reality is that the White House, whether it still houses Biden, a re-elected Trump, or another Democrat or Republican, will ultimately decide whether to keep the trade war going with China.

Under Biden, new trade sanctions — and there have been many of them — have aimed to protect economically or militarily strategic areas of the US economy, with measures aimed at building America’s capacity and reducing China’s. Advanced semiconductors (computer chips) are a good example.

It’s not just China that should be nervous at the prospect of Trump’s return, a prospect that needs to be taken seriously given the strength of his grip on the Republican base and the revival of his trade wars.

Europeans, Japanese and South Koreans, where trade tensions have thawed under Biden, would be very concerned that Trump’s broader trade agenda would include their exports again. America First puts the rest of the world last.

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