Several policymakers, economists and trade associations argue that Trump-era tariffs on Chinese goods are causing rising inflation and should be repealed. There are many reasons to oppose the trade war, but blaming it for inflation only serves to deflect attention from the main culprits.

context

President Trump sparked the trade war in early 2018 by imposing tariffs on solar panels, washing machines, aluminum and steel. Although the tariffs did not apply solely to Chinese goods, they were largely the result of Trump’s belief that the US economy was being harmed by unfair Chinese trade practices, including currency manipulation, intellectual property theft, the forced transfer of technology and the dumping of cheap subsidized products. in the American market. Many hoped the trade war would strengthen the US economy by encouraging companies to bring manufacturing jobs back to the US and reduce our ever-growing trade deficit with China.

The Chinese retaliated by imposing tariffs on American products and this tit-for-tat pattern repeated itself through five rounds of additional tariffs on various products. The nations agreed to halt the escalation in January 2020, with China pledging to buy more American goods and services in exchange for lower tariffs on certain products.

When Trump left office in January 2021, tariffs averaged 20.7% each and covered 66.4% of Chinese imports. President Biden has shown no signs that he intends to end the trade war anytime soon.

The trade war did not go well

The trade war has failed in many ways. It first fueled a slight increase in jobs in the US steel and aluminum industries. However, consumers paid about $900,000 a year for every job created or saved in the steel industry, more than 13 times the average salary of a steelworker. Then those job gains disappeared during the pandemic. The rest of the world’s excess steelmaking capacity is nearly six times the production capacity of the US steel industry. Trying to revitalize the industry through tariffs was therefore always going to be an uphill battle.

Tariffs also failed to improve the U.S. trade deficit, which reached a record high of $859.1 billion in 2021. Our trade deficit with China increased 14.5% to 355 billion, reflecting both our continued dependence on Chinese goods and China’s inability to maintain its 2020 level. 2017 levels. China needed to purchase $502.4 billion worth of US goods and services in 2020 and 2021 to meet its commitment. It spent $288.8 billion, below even the 2017 baseline that guided the deal.

The trade war has also hurt American consumers. Economists generally find that tariffs imposed by large countries lead to “incomplete pass-through” of prices – companies that wish to continue exporting goods to countries imposing tariffs lower their prices and share the burden with consumers. However, no such transmission occurred during the trade war. Tariffs were passed on to consumers and real aggregate income fell slightly in the United States and China.

For all its flaws, the trade war plays little role in inflation

Inflation jumped 7.5% over the past year; the largest increase in forty years. The shortcomings of the trade war make it an easy scapegoat for inflation. But tariffs are not a major driver of inflation and repealing them would probably do little to slow the growth of inflation.

The acceleration in inflation began in March 2021, more than three years after the start of the trade war. This discrepancy illustrates why blaming tariffs for inflation is off target. Prices for priced goods such as solar panels and hot-rolled steel strip actually fell in 2019, before the pandemic created the conditions for higher inflation.

However, those who blame the trade war for higher prices are not completely wrong. U.S. tariffs and tariffs increased by $49.1 billion between the fourth quarter of 2016 and the third quarter of 2021, reaching $85.7 billion. The increase represents 0.3% of the $16 trillion that US consumers spend on personal expenses. The repeal of tariffs would result in a one-time and minimal reduction in consumer prices. But that proverbial drop in the bucket would do little to stem the rising tide of inflation.

Conclusion

It would be a simple solution if tariffs were the main driver of inflation. But inflation raises the price of everything, not just priced goods. Repealing tariffs would offer minor relief, but it would do nothing to slow the rising prices of food, housing and fuel that affect the daily lives of Americans far more than any good burdened by tariffs. the trade war.

The opinions expressed in this article are those of the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com