Although the United States is often called the Land of the Free, it has turned into a country where government determines who we can buy and sell from. Many Americans will beg their trade power for exemptions if they are denied freedom to trade and do not have to pay an import tax. This is, I believe, a fair description of the Biden administration’s decision to not only maintain ineffective import taxes—also called tariffs—but to re-up the listless exemption process.
United States Trade Representative Katherine Tai announced recently that tariffs placed by Trump to force China’s government to change their ways were ineffective after a lengthy review. But the Trump administration appears to want more of the exact same.
It is shameful. The administration is continuing to support tariffs and signal its belief that Uncle Sam knows better when it comes trade. While tariffs can be presented as an opportunity to improve the competitiveness of U.S. workers, or to provide a better way for them to do so, domestic consumers will always suffer from fewer options and lower prices. These consumers often are domestic producers who want to protect American goods and make them more affordable.
Scott Lincicome, Cato Institute’s director, summarized this point nicely: “The Trump Administration imposed tariffs on Chinese imports, harmed U.S. consumer and manufacturer, deterred investor (mainly because of uncertainty), lowered U.S. growth and hurt U.S. Exporters (especially U.S. farmers and U.S. producers that used Chinese inputs).
The tariffs have not succeeded in achieving the goal of former President Donald Trump to press China into abandoning its central planning. The truth is that the reliance on tariffs—instead of on a real trade agreement’s traditional compliance incentives—set it up to fail. As Lincicome explains: “Because the agreement is so one-sided, China—the party making all of the concessions—has very little incentive to comply in order to maintain its agreement benefits (there are none) or encourage U.S. compliance (there’s nothing for the U.S. to comply with).”
He also stated that the “current U.S. Policy actually seems to have pushed China towards” double downon self-sufficiency and distortive industry policy as well as nationalism generally
The hope that tariffs might force Chinese multinational companies to return to the United States has also failed. A new paper by University of Kansas researchers and University of California Irvine scientists is reported. ReasonEric Boehm of the Magazine wrote these words:
“Roughly 11 percent of multinational companies exited China in 2019, the first full year in which tariffs were in place—a significant increase from previous years. However, the number of multilateral firms in China increased over the same period as foreign investment continued flowing into China despite the increase in tariffs.
It appears that the reason firms left China was less due to the tariffs, than the uncertainty created in the trade war between China’s dictatorial president and its authoritarian ruler.
But, we will continue to do what didn’t work before. Tai, President Joe Biden, as well our trade overlords, may believe that this bitter pill will be swallowed by all of us. This is because American producers are allowed to go and make their points. It won’t be much comfort for those who were not granted mercy under the Trump administration.
In fact, only a very small number of applicants were allowed exemptions according to data in a September 2021 Congressional Research Service document. This was and likely will remain a biased process that favors special interests. As the Government Accountability Office points out, it was also costly, arbitrary and slow.
When faced with this evidence, most people would back away from using tariffs—but not politicians and trade bureaucrats. This is not just pursuing a failed policy. It’s also double-downing on the notion that American producers should beg for trade freedom and do what’s best for their employees and businesses.
Do we live in the land where the free are allowed to vote, or is it the land of permission-slip petitioners who have the right of first refusal?
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