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  May 31st, 2018 | Written by

Trump’s Tariffs Harm US Interests More Than Their Intended Targets

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  • An enormous knowledge gap remains between China and the United States.
  • It is impossible to hit tomorrow’s exports with today’s tariffs.
  • Trump’s Section 301 tariffs are an example of 20th century tools aimed at 21st century trade flows.
  • Trade restrictions push high-tech firms to locate elsewhere.

The White House announced this week today that it would release by June 15 a final list of $50 billion in imports from China that would be subject to tariffs of 25 percent, with duties implemented soon thereafter. It’s part of the on-again/off-again merry-go-round of sanctions that may or may not be eventually imposed on China for violating intellectual property norms.

To the Trump administration’s credit, analysts say than an earlier proposed list of products subject to the new tariffs do target Chinese exports that use US and other western intellectual property. The problem is, and a big reason why these exports incorporate US and western patents, is that they derive from western companies that have operations based in China.

In addition, the sanctions would hit high-tech and other sophisticated products that US producers incorporate to add value to their output. As a result, US companies would be placed at a competitive disadvantage as a result of the tariffs, since competitors on Europe, Japan, and South Korea would be able to acquire those products and components at lower cost.

According to a recently released report from the Peterson Institute for International Economics, the tariffs would miss the mark on penalizing Chinese domestic companies that may have misappropriated US technologies.

For all of President Donald Trump’s bluster about Chinese trade, the PIIE report concludes that “the lion’s share of US imports in these sectors [hit by the tariffs] originates in Chinese-based affiliates of multinational firms, not Chinese domestic firms.” As a result, the report concludes, “tariffs are an ineffective response to concerns about China’s high-technology aspirations.”

US-China trade is now largely triangular, the report notes. For example, a US designer of laptop components may send technical specifications for a manufacturer in Taiwan, which manufactures the units and sends them to China, where they are incorporated into laptops. The laptops are then exported to the United States and elsewhere.

In other words, the proposed Section 301 tariffs target global supply chains. The Trump administration, the report argues, “should be concerned at least about potential damage on American businesses and their employees. To the extent that the tariffs land directly on productive inputs, they raise the cost of manufacturing goods in the United States, push American firms offshore, and handicap US-based exporters selling in foreign markets. Competitors based in other countries will not face the same taxes on their production and inputs.”

The tariffs “harm American interests more than their intended targets,” the report concluded. “President Trump’s Section 301 tariffs are a prime example of 20th century tools aimed at the trade flows of the 21st century. Tariffs and quotas are ineffective at stemming knowledge flows between innovative countries and developing nations.”