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US Trade Policy Haunted By Ghosts Of Christmas Past

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Nobody wants to look like Scrooge at Christmastime, so the Trump White House got cold feet in late 2019 as it was due to slap tariffs in its last tranche of Chinese imports. That move let a lot of American shoppers off the hook. Chinese imports of Christmas decorations and popular gift categories including cell phones, toys and computers escaped the tariffs. But the result — paradoxically for an administration which was guided by economic nationalism — was that relatively frivolous foreign products and high-tech finished consumer goods were spared the tariff burden, while U.S. manufacturers were taxed “bigly” for the inputs they need to make our own exports. Biden’s trade policy is haunted by the ghosts of Trump’s ill-advised trade wars, and it is damaging to the US economy.

Key inputs on a range of intermediate goods, capital goods, and steel and aluminum are costing U.S. manufacturers and the U.S. economy $50.8 billion annually. Retaliatory tariffs from our trade partners are costing U.S. exporters even more at $73.2 billion a year. (These estimates are on the low end because they don’t account for the inefficient reallocation of resources due to the tariffs, often referred to as the deadweight loss.) The tariffs protected some domestic industries, but that was outweighed by higher costs for imported inputs and harmed competitiveness in overseas markets due to retaliatory tariffs, as rigorous empirical work by two Federal Reserve Board economists shows.

For holiday merrymakers this year, tariffs seem to be the least of their concerns. The American Christmas Tree Association is saying that there will be enough artificial trees for anyone that wants one, but they might not get exactly what they want. The limited availability has nothing to do with tariffs. Instead, the China COVID-19 lockdowns, inflation and fears of recession all led to retailers ordering fewer artificial tree varieties this year. Plus, many sellers have been struggling with excess inventory since this summer, and they probably didn’t want to add Christmas trees to their glut of extra merchandise. (Shop early if you are looking for a certain type of tree.)

Duty-free Christmas flare, even if there’s not quite enough of it, is great — but what American consumers and businesses need this Christmas is a break from across-the-board high prices. The Biden administration has left hundreds of duties in place that are disproportionately hitting U.S. manufacturers.

U.S. producers need access to materials at globally competitive prices to earn customers both at home and abroad. Homebuilders and homebuyers are also feeling the pain. Recent work by the American Action Forum’s Tori Smith and Tom Lee shows the tariffs on certain homebuilding products from China used to be about 3%. Now they are 27%, despite a nationwide housing shortage that is forcing outmigration from high-demand metro regions.

Homebuilders have tried to avoid some of the tariffs by making adjustments in product sourcing. For instance, so far this year, trade data show only 60% of imported vinyl flooring coming from China compared to 86% in 2018. U.S. buyers have mainly pivoted to Vietnam to pick up the slack, while shipments from South Korea, Taiwan, India and Cambodia have also risen sharply.

Overall, homebuilding input costs rose 12.7% in 2021, and are projected to rise another 14.1% by year’s end, according to the commercial real estate and investment firm CBRE. Tariffs are driving a lot of these higher costs for homebuilders and homebuyers.

Businesses will keep figuring out how to navigate supply chain disruptions. Importers will keep trying to find new suppliers abroad. But the hefty annual price tag of more than $120 billion will weigh on the economy. Biden’s inaction on the tariffs and trade deals — effectively continuing to wage Trump’s ill-advised trade war — is damaging. Without tariff relief, U.S. manufacturers, and those of us who rely on them, will continue to feel the pain in 2023.

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