Given high inflation and rising prices, the Biden administration has announced that it is considering removing its current tariffs on Chinese imports to ease inflationary pressures. Tariffs have indeed harmed both industry and American workers. Another consequence of the tariffs imposed by the United States is that they have invited retaliatory tariffs, mainly from China, on American exports. Retaliatory tariffs have hurt American businesses and workers even more, with some geographies and industries bearing the brunt.
The Biden administration’s reassessment of tariffs on Chinese imports comes as the first tranche of Section 301 tariffs on $34 billion worth of goods is set to expire on July 6. Another tranche of $16 billion will expire on August 23, and a third of about $100 billion. September 4. The expirations are due to the four-year deadline on tariffs under Section 301, after which tariffs expire unless a review results in an extension. It’s unclear whether the Biden administration is extending the tariffs, changing them, or letting them expire after U.S. Trade Representative (USTR) review.
All in all, China has focused its retaliatory tariffs on agricultural and seafood products, and although the tariffs were imposed on auto exports for a short time, they were lifted and not reimposed. As China is the largest agricultural export market for the United States, a large percentage of agricultural products, including soybean and pork exports, have been targeted by retaliatory tariffs. Of all retaliatory tariffs (including retaliation from other jurisdictions), 8.7% ($134 billion) of US exports were targeted by retaliatory tariffs, including $30 billion of agricultural products.
For example, in response to US tariffs on washing machines and solar panels, China imposed 179% tariffs on US sorghum exports, resulting in an immediate halt shipments and damage to American industry. While tariffs on sorghum were quickly removed, tariffs on billions of dollars of other exports remain as part of the escalating trade war. In response to U.S. Section 301 tariffs targeting $350 billion of Chinese imports, China imposed tariffs on more than $100 billion of U.S. exports ranging from 2.5 to 25 percent, and in response to the Section 232 tariffs, China imposed tariffs on $2.5 billion of US exports. ranging from 15 to 25 percent.
A U.S. Department of Agriculture study found that retaliatory tariffs reduced U.S. agricultural exports by $27 billion between mid-2018, when the tariffs were imposed, and the end of 2019. soybeans in particular accounted for most of the decline, at 71%, followed by sorghum and pork. Losses were mostly concentrated in states exporting the commodities, such as Iowa and Kansas. Due to tariffs, the United States lost market share to Brazil, which increased its agricultural exports to China by $8 billion in 2018. Another analysis found that in total , the United States lost nearly $16 billion in trade with retaliatory countries in the agricultural market alone. .
Under the U.S.-China phase one deal, China agreed to buy nearly $40 billion of U.S. agricultural products in 2020 and 2021, halve its retaliatory tariffs, and to exempt a variety of agricultural and energy products from retaliatory tariffs. As a result of the exemptions, U.S. exports to China of affected goods have rebounded significantly, rising from a low of 16% market share in 2019 to 26% from March 2020 to February 2021. Although market share remains lower than 2017 levels, U.S. exports to China would have grown more had it not been for the COVID-19 pandemic.
Auto exports have also been hit by retaliatory tariffs. Using county-level data, economist Michael Waugh found that a one percentage point increase in exposure to Chinese retaliatory tariffs leads to a one percentage point decrease in sales of automobiles through 2018. He also saw spillover effects in other markets: countywide retail employment declined due to exposure to retaliatory tariffs. Affected companies have reconfigured their supply chains and laid off workers. Affected workers will reduce spending elsewhere in the local economy, resulting in negative county-wide impacts. Another analysis found that by the end of 2020 auto exports had still not recovered, despite China’s purchase commitments in the phase one deal.
Looking at the overall economic impacts, Pablo Fahjelbaum and his co-authors found that retaliatory tariffs caused total US exports to fall by 9.9%, reducing US GDP by 0.04%. Mary Amiti and her co-authors also identified a significant negative effect of retaliatory tariffs. Their analysis found that a 10% increase in tariffs lowered the value of US exports by $32 billion, costing US businesses about $2.4 billion per month in lost exports. Export quantities and prices fell, as an analysis found that export prices fell by almost 50% after one year. Rather than passing the tariffs on to Chinese consumers, most U.S. companies have simply borne the costs.
The trade war has brought no tangible benefits to American businesses and workers. While the US tariffs were intended to protect US industries, they have largely hurt the US economy. And they enticed foreign countries to retaliate with their own tariffs, which hurt the economy even more. The Biden administration should bring relief to American industries and workers by ending the trade war between the United States and China.