Apr 4, 2018

Trade Wars Penalize Domestic Consumers

Veronique de Rugy Senior Research Fellow , Daniel Griswold Director of Trade and Immigration

Veronique de Rugy

The United States and China are playing a dangerous intimidation trade game rather than coming to the negotiating table. Someone has to break the cycle and be the adult in the room. If they don’t, the costs could be large.  Besides, the Trump administration's aggressive approach may not work well with an authoritarian regime like China's.

Tariffs imposed by any government are, first and foremost, penalties on those of its own citizens who buy imports (or import-competing domestic goods). The Trump administration’s tariffs, therefore, are penalties imposed on Americans. It is the American people who will face higher prices and lose their jobs. Likewise, Chinese tariffs are penalties imposed on the Chinese people.

But surely at this game of abusing its own citizens, the Chinese government has the upper hand. Compared to the American government, it will be less likely to flinch, largely because its officials bear no political costs for the tariffs they impose. Congressional Republicans up for reelection in November understand the political cost they may face, especially when tariffs are applied to goods produced in their districts.

The Trump administration should rethink its strategy, and, rather than try to trade-war China into doing what it wants them to do, pair up with other countries to engage in negotiation. It would give the US more leverage in the negotiation and save American consumers from the nasty escalation of this trade war.

Daniel Griswold

The escalating trade war between the United States and China will claim heavy economic casualties in both countries. The reckless and provocative Section 301 tariffs announced by the Trump administration will invite a proportional response from China, which is America’s third largest export market for goods. The current US approach will inflict immediate and certain damage for a very uncertain outcome.

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