The World trade Organization defines tariffs as duties or tax on imported goods. These tariffs result in an economic advantage for local or domestic goods over similar imported goods. Tariffs duties or taxes are an instrument to enforce or promote trade policy while raising revenue for that government. (World Trade Organization 2020). Tariffs are often used by governments to change trading behavior between countries. Mercantilism, protectionism, isolationism to some degree, are all trading philosophies that use tariffs. The effects from tariffs are multi-faceted. While a government can effectively change trading behavior, its consumers and producers experience a wide spectrum of calamity or profitability as a result.
Tariffs are a commonly employed tactic used by the United States government for many years. The escalation of the trade talks between China and the United States has brought this close to home for many U.S. citizens over the recent years. Our relationship with China has been one of optimism for many years, beginning with the Nixon administration’s efforts to open trade with China. Richard Nixon was the first U.S. president to visit mainland China in 1972. Trade with China at the time was looked at with anticipation and goodwill. Through the years, China has grown to be a world superpower, many believe that the exporting of American manufacturing has paid for that development.
Currently the international trading agreements with China are under strain. As of May 2020, there is a 54.6 billion trade deficit with China (United States Census Bureau, 2020). This trade imbalance has been the driving force, along with intellectual property theft and currency manipulation, creating a schism between the two countries. Richard Katz, the editor of the Oriental Economist, suggests that the trade deficit is not as large as it would appear to be. Evidently, regulations of labeling requirements on products entering the country from China might skew the actual deficit. Currently the regulations require anything produced in China that is shipped to the U.S. be labeled Made in China. In today’s international economy there are products and components that are made world-wide with finally assemble in China. These would have the label Made in China, even though a large percentage of the product may have been made elsewhere. “Take an iPod, which is sold for $300 in the United States, but whose Chinese value consisted of a mere $4 in assembly labor. Because Chinese assembly was the last stage, under U.S. law, the entire iPod is slapped with the label Made in China and its entire value is counted as an import from China” (Katz, 2016). Subsequently, the trade deficit that is at the heart of current tariff wars we are now experiencing with China, may be inflated due to simple labeling parameters.
Tariffs can be a very powerful economic tool as well as an emotionally charged effect experienced by consumers and producers. Tariffs do create revenue for the imposing country, however, those same products, now with an added cost are passed on to the supplier or producer who then has to either absorb or pass those costs to customers. The end result is an inflationary effect that can permeate an economy. The U.S. has evolved to become a service-oriented economy. The manufacturing bravado we had in the 1950’s and 1960’s has been passed to China as well as other less economically advanced countries to take advantage of lower cost of living and the resulting lower wages. The U.S. is experiencing regrets at losing its manufacturing noblesse due to the increased strength now seen in an adversary, China. I believe that what is missing from the efforts to correct the trade imbalance are serious attempts to incentivize the return of manufacturing stateside. Tariffs are a tool that can and should be used in the interim to protect and enforce a balanced trade goal. But it is a temporary measure, without the return of manufacturing to the U.S., we risk the trade relationship with China worsening. Richard Katz’s article detailing the misrepresentation of imported goods from China, exacerbates a highly negatively charged situation. Tariffs need to be part of the arsenal of a complete approach to trade negotiations. Correcting or creating the desired environment we are lacking is paramount to maintaining our economic prowess.
Amiti, M., Redding, S., & Weinstein, D. (2019). The Impact of the 2018 Tariffs on Prices and Welfare.
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Katz, R. (2016). China didn’t take U.S. jobs. The International Economy, 30(3), 36-39,71.
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(2020). Trade in Goods with China, https://www.census.gov/foreign-trade/balance/c5700.html
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Lesh, M. (2018). NOBODY WINS IN GLOBAL TRADE WAR. Review – Institute of Public Affairs, 70(2), 54-57. Retrieved
World Trade Organization 2020 (https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm)