Why 10 percent? Why all countries? There is no other reasonable explanation than that Trump considers all trade to be “unfair” in some respect, or at least disadvantageous.

This isn’t normally the way presidents act when it comes to tariffs. Additional tariffs are generally imposed very selectively, under trade remedy statutes crafted by Congress. They are actions taken pursuant to a finding that a particular product is involved in a specified unfair trade act, or it may be that the new tariff is a surgical retaliatory measure to open a market for a specified American product.

Many uncertainties surround Trump’s proposals.

We don’t know why 10 percent was chosen or why it would remain at 10 percent once imposed, but we do take Trump at his word on tariff matters—think about his fulfilling his pledge on day one of his time in office to withdraw the United States from the Transpacific Partnership (TPP) negotiated by President Barack Obama with Asia Pacific countries. He also already applied tariffs at a level of his choosing, first to steel and aluminum imports, and then to most imports from China, which netted out to 19 percent, a third of what he is promising now.

But didn’t President Biden just put on massive tariffs on Chinese goods? It is true he kept his predecessor’s blanket China tariff and then added some very high selective tariffs of his own. The new Biden tariffs place 50 percent tariffs on semiconductor imports from China. But that trade is modest, just under $1 billion a year. This compares with US chip imports from all sources that amount to about $6 billion each month.

The number of Chinese EVs being imported into the United States is even harder to detect (most press articles on the new tariffs on EVs contain no data), but only about 2,000 of these vehicles entered the United States from China in 2024 Q1. The EV tariff is a pre-emptive strike against these imports, not because they caused injury to the domestic automobile industry, but because they might prevent the industry being served by domestic American companies. The 100 percent tariff could be circumvented. Transplants could come in, but the United States, as opposed to France, has not put out the welcome mat for Chinese car investment. The bottom line is this new Biden measure affects $18 billion in trade coverage at present, as compared with total US merchandise imports of $ 3.826 trillion in 2023.

There is no reason to assume that the US tariff would not be met with additional foreign tariffs. The European Union, Canada, and Mexico retaliated immediately when Trump put on the steel and aluminum tariffs in 2018. Does the United States then go another round of escalating tariffs at that point? Or does it all get sorted out, as it did pretty much in that case? Even so, it is high stakes game, and what is at stake is the health of the US economy and that of the rest of the world.

The indiscriminate imposition of tariffs would no longer be confined to a trade war with China, if that is where the United States is headed, but a war against trade itself. It is time to remember some largely forgotten economic history. Fifty years ago, in 1970 when the Congress was considering import quota legislation, trade speeches were larded with allusions to the dangers of Smoot-Hawley level tariffs and “beggar-thy-neighbor” policies. Everyone knew then what those terms meant. The 1930 Tariff Act was a bidding war of members of Congress trying to give import protection to their constituents. The Congress, which under Article I of the US Constitution has authority over commerce, raised tariffs on imports to an average of 47 percent. This caused immediate retaliation from about a dozen countries, including Canada and Mexico. A year later, Great Britain abandoned its free trade policy, authorizing its Board of Trade to impose tariffs of up to 100 percent of value. The Board imposed tariffs of up to 50 percent immediately. Economists agree that high tariffs broadened and deepened the Great Depression, when US unemployment reached 25 percent and we nearly lost our democracy.

These are not yet the conditions we face today. US tariffs average around 3 percent, and unemployment is under 4 percent. Despite the headline-grabbing numbers for the high Biden tariffs, this is not Smoot-Hawley.

Unlike the Biden tariffs, the Trump plan is for increased tariffs on all products from all countries. It is not just America First; it is America Alone. Politicians and the public, here and abroad, are getting used to the idea of having higher tariffs, de-sensitized to the fact that high tariffs ought not to be the new normal. They are in fact added taxes on us, and having them will have real costs.

Beyond this, there is a risk of contagion. US treasury secretary Janet Yellen has invited other countries to follow the United States in its imposition of China tariffs. Given that there is an undeclared US trade war with China, this is not surprising, although it is not normal for modern secretaries of the treasury to be tariff proponents. Europe is also expected to act by putting into place much milder tariffs on EVs from China. This is likely be followed by a Chinese response in kind, already being bruited about, affecting luxury autos. Where would this end?

The impact of an unlimited trade war between the United States and China is one thing. China accounts for 16.5 percent of US imports, still relatively small compared with the nation’s experience in 1930. But the next administration, depending on the outcome of the election, could be working on building tariff walls, this time against world trade.

Only trade experts can readily tell that the two, Trump and Biden, are not using tariffs in the same way. The American public and foreigners looking on can be excused if they don’t see a difference. In the 1930s, President Franklin D. Roosevelt led the way back from Smoot-Hawley and blanket trade protection. A second Trump administration, freed from an awareness of history, may lead the world toward experimenting with blanket protection, tight-rope walking over an economic abyss. If Biden, sometimes compared to Roosevelt because of his federal programs, is given a second chance, he will need to be clear that his trade policies will be designed to be good for America and good for America’s friends abroad. The American president was formerly seen as “leader of the free world.” That honor requires a trade policy that other nations can emulate, that can be both to their advantage and ours.

Alan Wm. Wolff is a distinguished visiting fellow at the Peterson Institute for International Economics.

To read the full blog piece published by the Peterson Institute for International Economics, click here.

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Introduction

Since 2018, the United States and China have been embroiled in a trade war. The trade war stems from US President Donald Trump’s decision to impose tariffs on several products and commodities imported from China. In response to the policy, China also imposed tariffs on several products and commodities imported from the US. Research conducted by Chad P. Bown (2022) from the Peterson Institute forInternational Economics shows that as of July 2018, the average US tariff on imports from China was still 3.8%. However, tariffs on imports from China gradually increased until they peaked at 21% in September 2019 and then dropped to 19.3% in February 2020.

Meanwhile, on the Chinese side, in July 2018, the average tariff on imports from the US was at 7.8% and then gradually increased to 21.8% in September 2019. As of February 2020, Chinese tariffs on imports from the US decreased to 21.3% and reached a low of 21.2% on July 2020. Furthermore, based on the impact of tariffs on the percentage of trade, around 66.4% of US imports from China and 58.3% of Chinese imports from the US in June 2022 are still affected by tariffs set against each other.

There are efforts between the US and China to defuse the trade war through the Phase One agreement, which was agreed upon in December 2019. The two countries agreed on structural reforms to China’s economic and trade regime, particularly in intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. In the deal, China also committed to increasing the imports of goods and services from the US. Furthermore, a dispute resolution system was established with immediate and effective implementation and enforcement. Finally, the US agreed to modify Section 301 of the Trade Act of 1974. Despite these efforts, as shown from the data in the previous paragraph, the tariffs that the US and China imposed on each other remained relatively high.

The US put several Chinese companies on the Entity List as the trade war escalated between the two countries. The US Bureau of Industry and Security (2022) reported on August 23rd, 2022, that about 600 Chinese companies were already included on the list, with 110 companies included during President Joe Biden’s tenure. In practice, companies on the Entity List will have restrictions on access to commodities, software, and technology from the US. However, US entities may export, re-export, and transfer such matters to companies on the Entity List with a license from the US Bureau of Industry and Security.

The conflict between the US and China is not limited to political economy issues but also security politics. China’s claim to much of the South China Sea, known as the nine-dashed line, is contrary to the principles of the US freedom of navigation. This situation leads to freedom of navigation operations (FONOPS) by the US Navy in those waters that China regards as part of its territories as opposed to its claims. The existence of Taiwan also creates issues between the two countries. Although since 1972, it has recognized the communists in Beijing as the sole representative of China, the US maintains its ties with nationalists in Taipei and ensures their independence from Beijing. China’s growing economic and military power over the past two decades allows the country to become increasingly assertive of Taiwan. This raises tensions with the US as Taiwan’s ally and security guarantor.

The conflict between the US and China prompted the two countries to reduce their dependence on each other. US manufacturing imports from China have decreased, while Asian countries categorized as low-cost countries, have increased. At the same time, the issue of reshoring US companies’ operations in China arose. A survey conducted by A.T. Kearney (2022) found that about 47% of executives of US manufacturing companies operating in China have moved part of their operations back to the US in the past three years. 29% said they would restore parts of their operations in the next three years, and 16%said they had considered reshoring but are yet to make a decision. In the survey, US company executives also outlined that their options also include Mexico, Canada, and Central American countries (nearshoring), not limited to reshoring to the US. This decision coincides with the trend of automation by US companies; instead of looking for cheap labor, they are replacing them with robots. The process creates challenges for countries that host part of US companies’ operations characterized by the labor-intensive and technology-laden process.

From the Chinese side, the disruption caused by the conflict with the US encourages them to become more economically self-sufficient. Such efforts to achieve self-sufficiency are made through the dual circulation model, which includes changing the growth model from export-based to domestic consumption and reducing dependence on imports. Concerning the second element, according to the Economist Intelligence Unit (2020), China focuses on three sectors. First, technology with a priority towards semiconductors. China provides fiscal incentives and subsidies, and encourages cooperation between industries and universities to reduce dependence on US semiconductor companies or companies from other countries that use US technology. China also provides fiscal incentives and subsidies, and encourages cooperation between industries and universities. The second sector is energy. China does not rely on the US or its allies for energy supplies, however, shipping oil and gas by sea is vulnerable to a blockade or interception. The threat of a blockade prompted China to increase its renewable energy sector investment. The third sector is food. China’s agricultural sector is labor-intensive, but they experience labor shortage and are dependent on imports of seed and technology. This limitation prompted a policy of agriculture modernization from labor-intensive to technology-intensive.

Alfin Febrian Basundorois a graduate student at the Strategic and Defence Studies Centre, Australian National University, Canberra, Australia.

Muhammad Irsyad Abraris a graduate student at the Department of International Relations, Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

Trystantois an undergraduate student of international relations at Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

To read the abstract as it was originally posted by the Journal of World Trade Studies, click here.

To read the full research article, click here.

The post The Positive Impact of US-China Trade War on Global South’s Position in the Global Value Chain appeared first on WITA.

Here in America, real average weekly earnings of all U.S. workers fell 3.1 percent in 2022. A central policy challenge in the year ahead is not just creating jobs. It is creating good jobs, i.e., jobs with high and rising incomes.

How to meet this challenge? Just before the winter holidays, the U.S. Bureau of Economic Analysis released new data that show the way forward. In 2020, a certain set of U.S. companies employed 28.4 million workers in America at an average annual compensation of $84,925—about 20 percent higher than the average for the rest of the U.S. private sector.

Which companies? The U.S. parents of U.S.-headquartered multinational companies. U.S. multinationals have long been among America’s strongest firms. Although they comprise far less than 1 percent of U.S. companies, in 2020 their U.S. parents accounted for 23.1 percent of all private-sector jobs, 38.5 percent of investment in plant and equipment, 46.4 percent of exports of goods, and a remarkable 72 percent of business spending on research and development.

Despite the common allegation that multinationals simply “export jobs” out of America, research consistently shows that expansion abroad by these firms has tended to complement—not substitute for—their U.S. operations. More investment and employment abroad have tended to create more American investment and jobs as well. From 1988 to 2020, employment in foreign affiliates of U.S. multinationals rose from 4.8 million to 14 million. Over that same period, employment in U.S. parents rose from 17.7 million to 28.4 million—a slightly larger increase at home than abroad.

Thanks to all their global dynamism, for decades U.S. multinationals have driven an outsized share of U.S. productivity growth, the foundation of rising standards of living for everyone. They accounted for about 40 percent of the increase in U.S. business labor productivity since 1990. For workers, the bottom line of all this is high and rising incomes. Globally connected jobs tend to pay more because global engagement fosters—and is fostered by—innovation and growth.

There is vast potential for creating more good jobs in America that are connected to the world. From 2000 to 2020, U.S. output expanded by $10 trillion—but over that generation the rest of the world grew by over $40 trillion, such that by 2020 America’s share of global output had fallen to just 24.8 percent, down from about 30 percent in 2000. Growth in labor forces and productivity around the world has boosted the purchasing power of millions of companies and billions of consumers. U.S. multinational companies have harnessed this growth through their exports from America and, even more, through the local sales of their foreign affiliates. And in the postpandemic years ahead, forecasts of continued faster growth in the rest of the world mean even greater potential for U.S. multinationals to build more jobs and opportunity in America connected to that global growth.

But realizing this potential is not a foregone conclusion, because global growth has also spawned new competitors for U.S. multinationals. The McKinsey Global Institute recently documented and analyzed the world’s “superstar” companies that generate the largest economic profits thanks to features including high productivity. From 1995 to 2016, the U.S. share of global superstar companies fell from nearly 50 percent to 38 percent. Particularly ascendant are superstars from fast-growing Asian countries, including China, India, and South Korea. There is no guarantee that past global strength of U.S. multinationals will be prologue.

And unfortunately, the sobering reality is that the United States has become largely adrift in its policy engagement with the global economy. America’s many post–World War II decades of liberalizing trade, investment, and immigration—all to the benefit of American companies, as well as to the American economy overall—have largely stalled out.

Consider trade. America has stopped pursuing new trade agreements and instead has launched and maintained a trade war. From 2010 to 2020, the United States implemented just four new free-trade agreements—three of which (Colombia, Peru, and South Korea) had been negotiated and ratified before 2010, and the fourth of which, the USMCA, was largely refining the NAFTA that had been negotiated decades earlier. Meanwhile, so many other nations have maintained and even accelerated their efforts at trade liberalization. Free-trade agreements that exclude the United States are agreements that impede the growth of U.S. companies both abroad and at home.

To support American workers, the White House and the new Congress need to turn their attention away from pandemic ad hockery. High-productivity, high-wage jobs tend to be global jobs. We should recommit to investing in creating them.

Matthew J. Slaughter is the Paul Danos Dean of the Tuck School of Business at Dartmouth, where in addition he is the Earl C. Daum 1924 Professor of International Business.

Matthew Rees is the founder of Geonomica, an editorial consulting firm that has worked with clients across a number of industries, and a senior fellow at Tuck’s Center for Business, Government & Society.

To read the full article, please click here.

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Furthermore, more recent developments, and in particular the U.S.-China Economic and Trade Agreement concluded in February 2020, require attention as their protectionist nature can be regarded as a factor limiting the further development of China-U.S. trade relations. This could also affect their WTO trade partners. These historical as well as more recent events set the stage for viewing the effects of COVID-19 on China-U.S. trade relations. 

This chapter, both in its theoretical and empirical layers, mainly applies the analyticaldescriptive method, but also uses the normative when the author shares his conclusions and opinions. Comparative analysis was used in commenting on the historical path of China’s development, its long term economic relations with the U.S. economy and their implications for the global economy. This was done bearing in mind political factors and the changing geopolitical environment. 

The focus of the analytical section is predominantly on trade in goods, as this plays a key role in the build-up of China’s export surplus, which consequently leads to a widening of the international payment disequilibrium. Therefore, the bilateral trade balance and the factors shaping it in the long term are analysed. It is argued that its growing imbalance in favour of China has substantially contributed to international imbalances of payments and consequently to the P.R.C.-USA trade war. 

While theoretically and methodologically the chapter is located in the area of international economics, application of an interdisciplinary approach and analysing how changing patterns of global political relations increasingly affect international economic relations is the key contribution of this chapter. In this context, the author builds on prior research on the opening mechanism of the Chinese economy, the specifics of its market transformation, theoretical and practical aspects of international payment imbalances as well as factors and determinants of China-U.S. economic relations within the changing pattern of the world economy and global political environment.

To read the full chapter, click here

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We argue that public opinion on free trade is affected not just by domestic factors such as education and gender, but also by the actions of foreign countries. Our central hypothesis is that protectionism from abroad reduces public enthusiasm for free trade in target countries. We argue that this decline in public support for trade reflects individuals’ preferences for two distinct types of reciprocity. Existing research on public attitudes towards international politics highlights the importance of direct reciprocity, which refers to declining support for cooperation with countries that do not cooperate. Along these lines, we expect the public to want to retaliate by raising tariffs on imports from the protectionist country.

To read the full report, click here.

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The post The Smoot‐​Hawley Trade War appeared first on WITA.

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This Policy Brief assesses the extent to which the United States increased its imports from South Korea after the US imposition of tariffs on Chinese exports. Korea benefited from this shift in US imports, although the increase was relatively small in most sectors. The authors use highly disaggregated US import and tariff data to examine adjustments in US purchases of manufactured goods from its trade partners. Their analysis indicates that Korea made a small gain in the US market following the levying of US tariffs on Chinese exports, with Korea’s share of overall US manufacturing imports rising 0.9 percent and its share of US manufacturing imports subject to trade war tariffs rising 1.0 percent. Gains were spread across a variety of manufacturing sectors—such as wood products, textiles and apparel, and machinery—reflecting both the choices made by US officials regarding which Chinese exports to tax and the nature of preexisting trade relationships between South Korea and the United States.

To read the full policy brief from the Peterson Institute for International Economics (PIIE), please click here. 

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