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US Senator wants to increase tariffs on China until deficit returns to balance

The trade deficit between the United States and China has been at the center of a controversial political debate for the past few years, affecting both countries’ economies and diplomatic relations. In the latest push to balance the deficit, Senator Josh Hawley introduced the Raising Tariffs on Imports from China Act.

This document seeks to increase tariffs on imports from China until the US bilateral trade deficit returns to balance. In conjunction with this legislation, Senator Hawley wants debt limit talks to focus on the reduction of the trade deficit.

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The US normalized trade relations with China during the Clinton administration. Since then, the trade deficit has averaged U$S 350 billion annually, and according to Senator Hawley, it is the reason for the loss of 3.82 million jobs, particularly 2.89 million jobs in the manufacturing industry.

In 2022, the trade deficit grew to U$S 382,917 million.

China is currently the US largest supplier of goods imports. The main import categories include electrical machinery, machinery, toys and sports equipment, furniture and bedding, and miscellaneous textile articles.


Additionally, China is the 7th largest supplier of agricultural imports to the US and has steadily increased imports of services since 2010.


The legislation introduced by Senator Hawley would require the US President to calculate and subsequently publish the total value of imports into the US from China and total value of exports from the US to China annually.


The document also mandates the President to impose an additional duty of 25% on all goods imported from China if, a bilateral deficit is published in the previous calendar year, and authorizes the President to remove duties if, during the previous calendar year, the US registers a bilateral surplus with China.


In 2018, the Trump administration imposed the tariffs under section 301 of the Trade Act of 1974 based on China’s alleged intellectual property theft and forced transfer technology.


President Joe Biden’s administration has kept the tariffs on imports of Chinese goods in place for more than two years and is currently undertaking a review of the duties to evaluate their effectiveness and decide if they should continue.


According to a report by the US International Trade Commission (ITC), a bipartisan entity that analyzes trade issues, US importers bore almost the entire burden of tariffs on Chinese goods.


The conclusions back the longtime assertion of US Chamber of Commerce and independent academic economists that the cost of the tariffs hurt American firms and contradict Trump’s claim that China paid the ultimate cost of the duties.


Prices for imports from China across some of the most affected industries — including imports of computer equipment, semiconductors, furniture and audio and video equipment — increased as much as 25% in 2021, according to the agency.

In the same year, prices of US-produced goods in some industries rose 3% to 4%.


Imports of the affected products from China declined to about U$S 265 billion in 2021 from U$S 311 billion in 2017, the year before the duties were imposed, the ITC informed.


Last year, the US Trade Representative (USTR) began a review of the tariffs, which would have started to automatically expire in the middle of last year absent an evaluation of their impact.

USTR got numerous requests for the tariffs to continue and has kept them in place as it undertakes the review. The administration received thousands of public responses to a request for comment.


Those in favor of the tariffs believe that they have helped create public awareness and a shift in attitude regarding buying local, domestically produced goods. The supporters claimed that Section 301 affirmed the US government’s willingness to protect domestic industry, and thus empowered companies to reduce offshoring.

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Others argued that the 301 actions, coupled with existing anti-dumping (AD) and countervailing duties (CVD), helped to keep unnaturally low-priced Chinese products out of the US market. Industries that hailed the measures as being particularly helpful in that regard included polyvinyl carbon and activated carbon producers.


According to analysts, keeping artificially low-priced goods out of the market not only benefits producers, but has a ripple effect throughout the economy, contributing to shorter lead times, supply security, and a domestic preference for US goods.


Notably, 65 percent of the companies supporting the 301 tariffs are already afforded protection with existing AD and CVDs, many of which not only wanted the 301 tariffs to continue, but also favoured their expansion.


As the Biden administration undertakes a full review of the Section 301 tariff actions, it faces the task of weighing the costs alongside the benefits. Some industries have profited from the tariffs, while most of the costs have been borne largely by US consumers.


As Americans struggle with high inflation, the question before the Biden administration is whether the benefits accruing to a few industries outweigh the harms on the rest of the US economy.


 

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