Trump’s tar­iffs on China: What are they? How do they work?

The Standard Journal - - NEWS - By Paul Wise­man AP Eco­nom­ics Writer

Pres­i­dent Don­ald Trump has height­ened ten­sions with China by es­ca­lat­ing his tar­iffs on $200 bil­lion in Chi­nese goods from 10% to 25%.

As a tool of na­tional pol­icy, tar­iffs had long been fad­ing into his­tory, a relic of the 19th and early 20th cen­turies that most ex­perts came to see as harm­ful to all na­tions in­volved. Yet more than any other mod­ern pres­i­dent, Trump has em­braced tar­iffs as a puni­tive tool — against Europe, Canada and other key trading part­ners but es­pe­cially against China , the sec­ond-largest econ­omy af­ter the U.S.

The Trump ad­min­is­tra­tion as­serts, and many in­de­pen­dent an­a­lysts agree, that Bei­jing has de­ployed preda­tory tac­tics to try to give Chi­nese com­pa­nies an edge in such ad­vanced tech­nolo­gies as ar­ti­fi­cial intelligen­ce, ro­bot­ics and elec­tric ve­hi­cles. Bei­jing’s tac­tics, the U.S. con­tends, in­clude hack­ing into U.S. com­pa­nies’ com­put­ers to steal trade se­crets, forc­ing for­eign com­pa­nies to turn over sen­si­tive tech­nol­ogy in ex­change for ac­cess to China’s mar­kets and un­fairly sub­si­diz­ing Chi­nese com­pa­nies.

Trump has also com­plained an­grily about Amer­ica’s gap­ing trade deficit with China for which he blames weak and naive ne­go­ti­at­ing by pre­vi­ous U.S. ad­min­is­tra­tions.

Last July, Trump be­gan grad­u­ally im­pos­ing tar­iffs on Chi­nese im­ports. Af­ter Fri­day’s in­crease, the ad­min­is­tra­tion is now im­pos­ing 25% tar­iffs on $250 bil­lion in Chi­nese goods. Bei­jing has coun­ter­punched by tax­ing $110 bil­lion of Amer­i­can prod­ucts, fo­cus­ing on agri­cul­tural goods, no­tably soy­beans, in a cal­cu­lated ef­fort to in­flict pain on Trump sup­port­ers in the farm belt.

A look at what tar­iffs are and how they work:

Tar­iffs are a tax on im­ports. They are typ­i­cally charged as a per­cent­age of the trans­ac­tion price that a buyer pays a for­eign seller. To use a sim­plis­tic ex­am­ple (ig­nor­ing real-world min­i­mum amounts sub­ject to tar­iffs): Say an Amer­i­can re­tailer buys 100 gar­den um­brel­las from China for $5 apiece — $500 to­tal. And sup­pose the U.S. tar­iff rate for the um­brel­las is 6.5 per­cent. The re­tailer would have to pay a $32.50 tar­iff on the ship­ment, thereby rais­ing the to­tal price from $500 to $532.50.

In the United States, tar­iffs — some­times also called du­ties or levies — are col­lected by Cus­toms and Border Pro­tec­tion agents at 328 ports of en­try across the coun­try. Pro­ceeds go to the Trea­sury. The tar­iff rates are pub­lished by the U.S. In­ter­na­tional Trade Com­mis­sion in the Har­mo­nized Tar­iff Sched­ule, which lists U.S. tar­iffs on ev­ery­thing from dried plan­tains (1.4 per­cent) to para­chutes (3 per­cent).

Some­times, the U.S. will im­pose ad­di­tional tar­iffs on im­ports that it de­ter­mines are be­ing sold at un­fairly low prices or are be­ing sup­ported by for­eign gov­ern­ment sub­si­dies.

Two things: In­crease gov­ern­ment rev­enue. And pro­tect do­mes­tic in­dus­tries from for­eign com­pe­ti­tion. Be­fore the federal in­come tax was es­tab­lished in 1913, tar­iffs were a big money raiser for Washington. From 1790 to 1860, tar­iffs pro­duced 90 per­cent of federal rev­enue, ac­cord­ing to Dou­glas Irwin, an econ­o­mist at Dart­mouth Col­lege. By con­trast, tar­iffs in re­cent years have ac­counted for only about 1 per­cent of federal rev­enue.

Tar­iffs are meant to raise the price of im­ports or pun­ish for­eign coun­tries for un­fair trade prac­tices, like sub­si­diz­ing their ex­porters and dump­ing their goods at un­fairly low prices. They dis­cour­age im­ports by mak­ing them costlier. They also re­duce pres­sure from for­eign com­pe­ti­tion and make it eas­ier for home-grown com­pa­nies to raise prices.

As global trade grew af­ter World War II, tar­iffs fell out of fa­vor. The for­ma­tion of the World Trade Or­ga­ni­za­tion and the forg­ing of trade deals like the North Amer­i­can Free Trade Agree­ment re­duced or elim­i­nated tar­iffs. The av­er­age U.S. tar­iff is now one of the low­est in the world: 1.6 per­cent, the same as the Euro­pean Union’s, the Pew Re­search Cen­ter re­ports.

Most econ­o­mists say no. Tar­iffs raise the cost of im­ports for peo­ple and com­pa­nies that need to buy them. And by re­duc­ing com­pet­i­tive pres­sure, they give U.S. pro­duc­ers lee­way to raise prices, too. That’s good for those pro­duc­ers but bad for al­most ev­ery­one else.

Ris­ing costs es­pe­cially hurt con­sumers and com­pa­nies that rely on im­ported parts. Some U.S. com­pa­nies that buy steel, for ex­am­ple, com­plain that Trump’s tar­iffs on im­ported steel leave them at a com­pet­i­tive dis­ad­van­tage. Their for­eign ri­vals can buy steel more cheaply and of­fer lower-priced goods.

In 2002, Pres­i­dent Ge­orge W. Bush’s ad­min­is­tra­tion placed tar­iffs on im­ported steel. A study fi­nanced by steel-con­sum­ing busi­nesses found that the tar­iffs cost 200,000 Amer­i­can jobs that year.

More broadly, trade re­stric­tions make an econ­omy less ef­fi­cient. With lesser com­pe­ti­tion from abroad, do­mes­tic com­pa­nies lose the in­cen­tive to in­crease ef­fi­ciency or to fo­cus on what they do best.

Randy Richards, a 65-year-old farmer near Hope, N.D., says the tar­iff war of the past year and a half has hit hard, and he was an­gry that more may be com­ing. Richards says he farms more than 6,000 acres of wheat, bar­ley, soy­beans, pinto beans and corn, and says tar­iffs have driven up the cost of the raw prod­ucts he needs to run and sup­ply his business and driven down the prices of what he has to sell.

Lyft co-founders John Zim­mer, front sec­ond from left, and Lo­gan Green, front sec­ond from right, cheer as they as they ring a cer­e­mo­nial open­ing bell in Los An­ge­les, to mark trading on the Nas­daq ex­change un­der the ticker sym­bol “LYFT.”

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