Daily Times

So is this what a trade war looks like?

The Trump administration and China’s leadership have imposed tens of billions of dollars in tariffs on each other’s goods. President Donald Trump has proposed slapping duties on, all told, up to $550 billion if China keeps retaliating and doesn’t cave in to US demands to scale back its aggressive industrial policies.

Until the past couple of years, tariffs had been losing favor as a tool of national trade policy. They were largely a relic of 19th and early 20th centuries that most experts viewed as mutually harmful to all nations involved. But Trump has restored tariffs to a prominent place in his self-described America First approach.

Trump enraged such US allies as Canada, Mexico and the European Union this spring by slapping tariffs on their steel and aluminum shipments to the United States. The tariffs have been in place on most other countries since March.

The president has also asked the US Commerce Department to look into imposing tariffs on imported cars, trucks and auto parts, arguing that they pose a threat to US national security.

Here is a look at what tariffs are, how they work, how they’ve been used in the past and what to expect now:

Q: Are We In A Trade war?

Economists have no set definition of a trade war. But with the world’s two largest economies now slapping potentially punishing tariffs on each other, it looks as if a trade war has arrived. All told, Trump has threatened to hit as much as $550 billion worth of China’s exports to the US with punitive tariffs. That’s more than the $506 billion in goods that China shipped to the United States last year.

It’s not uncommon for countries — even close allies — to fight over trade in specific products. The United States and Canada, for example, have squabbled for decades over softwood lumber.

But the US and China are fighting over much broader issues, like China’s requirements that American companies share advanced technology to access China’s market, and the overall US trade deficit with China. So far, neither side has shown any sign of bending.

Q: So What Are Tariffs?

Tariffs are a tax on imports. They’re typically charged as a percentage of the transaction price that a buyer pays a foreign seller.

In the United States, tariffs — also called duties or levies — are collected by Customs and Border Protection agents at 328 ports of entry across the country. Proceeds go to the Treasury. The tariff rates are published by the US International Trade Commission in the Harmonized Tariff Schedule, which lists US tariffs on everything from dried plantains (1.4 percent) to parachutes (3 percent).

Sometimes, the US will impose additional duties on foreign imports that it determines are being sold at unfairly low prices or are being supported by foreign government subsidies.

Q: Do Other Countries Have Higher Tariffs Than The United States?

Most key US trading partners do not have significantly higher average tariffs. According to an analysis by Greg Daco at Oxford Economics, US tariffs on imported goods, adjusted for trade volumes, average 2.4 percent, above Japan’s 2 percent and just below the 3 percent for the European Union and 3.1 percent for Canada.

The comparable figures for Mexico and China are higher: Both have higher duties that top 4 percent.

Trump has complained about the 270 percent duty that Canada imposes on dairy products. But the United States has its own ultra-high tariffs — 168 percent on peanuts and 350 percent on tobacco.

Q: What Are Tariffs Supposed To Accomplish?

Two things: Raise government revenue and protect domestic industries from foreign competition. Before the establishment of the federal income tax in 1913, tariffs were a big money raiser for the US government. From 1790 to 1860, for example, they produced 90 percent of federal revenue, according to “Clashing Over Commerce: A History of US Trade Policy” by Douglas Irwin, an economist at Dartmouth College. By contrast, last year tariffs accounted for only about 1 percent of federal revenue.

In the fiscal year that ended last Sept. 30, the US government collected $34.6 billion in customs duties and fees. The White House Office of Management and Budget expects tariffs to fetch $40.4 billion this year.

Published in Daily Times, July 8^th 2018.