Impacts of the U.S Tariffs on China

The report analyzes the impact of the tariffs on the civil, government, and business sectors, including job losses, price increases, and currency instability.

Impacts of the U.S Tariffs on China
Rami Sartawi | 300063556
Veronika Latrille | 300014788
Madeline Cobos |300088564
Christopher Venczel | 300068961
Burak Emre Toprak |
Lora Aljbour | 300055863
December 4th, 2018
ADM 1101 (A)
Professor N. Khan

Executive Summary
The following report will discuss the prominent tariffs imposed by the Trump
administration on U.S imports. Recently, President of the United States, Donald Trump has
modified the tariffs of certain goods in hopes to strengthen the US economy and tradings.
Trump claims that the United States has been subject to unfair trading, and his goal is to
decrease the trade deficit between the US and China, particularly. China will be the main focus
of the report, as it is one of the largest countries and by far one of the most important in terms of
its relationship with the United States regarding importation and exportation. Trump decided to
raise the the tariffs on Chinese goods in an effort to equalize the trading volumes between the
countries. Trump aims to open up the markets in order to export more American products to
China. The president claims the tariff increases are not going to cease yet. The new tariffs are
said to be beneficial to the United States and more importantly, the workers of the country. Not
only does this pose a potential issue for China, but for the U.S as well, as China threatens to
retaliate in response to the new regulations.
The new tariffs are particularly going to impact the retail industry. Companies will be
forced to choose between raising the price of the products or settling for lower profit margins.
Ultimately, consumers will be impacted as it is likely that the prices of the goods increase as a
result. Furthermore, the tariffs may have an effect on the employment rate as well as the
economy. The three segments - the civil, government and business sector will be discussed
extensively and how they have each been affected by Trump’s new tariffs.
-Consumer impacts, layoffs, increase in price → civil
-intellectual property theft
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Introduction
Tariffs started in 1789 in the US as a means to increase the price of imports or penalize
foreign countries from committing unfair trade regulations, such as subsidizing their exporters or
even unfairly lowering prices of their products. Imposing tariffs results in fewer consumers
willing to buy foreign goods and instead purchase domestic goods. After World War II tariffs fell
out of favor due to a global trade expansion. The formation of the World Trade Organization and
the initiation of trade deals in the US like North American Free Trade Agreement reduced tariffs
or abolished them overall. Afterwards, tariffs made a comeback against globalization when
richer countries such as the US moved factories to China and other low-wage countries then
transported them back to their wealthy homelands while paying low tariffs or none at all.
Trump amended trade agreements by desiring to crash down China and other countries in
order to decrease US trade deficits in which he blames the unjust trade policies. By imposing
these tariffs he is beginning to turn these desires into action.
Tariffs have historically served as a role in the nations foreign trade policy and also as a
source of federal income. As of today, tariffs imposed by Trump's Administration have a slightly
different purpose that targets one of the largest economically advanced countries such as China.
Before discussing these purposes, it is important to know that China and the US have a long history
together. Since 1949, U.S.-China relations have progressed from tense deadlocks to a complex
fusion of escalating diplomacy, and increasing international competition. In 2017 after Trump
became president, US Secretary Rex Tillerson described the US-China relationship as “one built on
non-confrontation, no conflict, mutual respect, and always searching for win-win solutions.” It
wasn’t until 2018 that Trump had a new purpose to tariffs,taking aim at China's
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theft of US intellectual property. The real reason behind these tariffs is to try to stop China from
its unfair intellectual property theft, and the only country that is facing China about that matter is
the United States. It believe that certain Chinese laws counteract property rights by driving
foreign countries to enter joint ventures with Chinese firms. This allows their Chinese partners
access and authorization to use the new and innovative technologies or even replicate them. In
an attempt to end this the Trump administration stated that tariffs were necessary to prevent
China's theft to US intellectual property and also help decrease the US trade deficit with China.
Consequently China responded back to these allegations by stating that the US did not
have enough evidence to accuse them of theft and therefore do not have legal authority to
respond based on the World Trade Organization regulations. China also criticized the US of
their export restrictions on high technology goods, their unfair status in the American economy,
and irrational trade sanctions. In a meeting, a leading member of a key Chinese committee gives
a strong warning to the Trump administration stating that: "China never wants a trade war with
anybody, not to mention the U.S., who has been a long term strategic partner, but we also do not
fear such a war.
However, a statement made by The White House declares that: "The goal of United
States trade actions is not to harm China's economy or start a trade war, but to get China to
follow through on allowing fair competition and stop their unfair trade practices that have been
hurting the American workers for years.
Since their consultation with the World Trade Organization, neither parties seem to be
able to reach an agreement. Both countries have continued to respond by ongoing trade war
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activities. While China experienced a trade surplus, the United States was encountered by a trade
deficit; causing the Trump Administration to take action by imposing imports.
Civil Sector
The U.S. has imposed tariffs on a total of $250 billion worth of Chinese exports. In
retaliation China has enacted tariffs on $110 billion of U.S. exports 2. These tariffs will likely
raise prices in both China and the U.S. as imported goods will cost more due to the import tax.
Also increased prices on imported goods allows domestically manufactured products to raise
prices as well while still remaining competitive. This increase in prices will partially be
transferred over to consumers who will end up paying more for the same products. Products
affected by U.S. tariffs “rang[e] from rattan mats to burglar alarms to bicycles” 1, however the
products most heavily affected by the tariffs are “computers and computer parts, furniture,
and tires” 2. Walmart, the biggest retailer in the U.S. 3, said the tariffs will “raise prices on
consumers” in a letter to a U.S. trade representative 4.
In response to the criticism, U.S. President Donald Trump claims the tariffs have had “no
impact on [the U.S.] economy” 5. Despite Trump’s claims, many American businesses have been
forced to make cuts due to the new tariffs resulting in large scale layoffs. A study by the Trade
Partnership Group found that the U.S. tariffs on aluminum and steel alone could lead to a net total of
over 400,000 americans losing their jobs 6. Due to China’s prominence in electronics manufacturing,
many U.S. electronics retailers and manufacturers have experienced the biggest impact from these
tariffs. An example of this is the TV manufacturer Element Electronics which plan to “lay off 127
workers from [their] South Carolina factory” due to “the new tariffs …
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recently and unexpectedly imposed on many goods imported from China” 6. The price increase
on electronics parts as a result of the tariffs are forcing companies like Element Electronics to
make cuts that affect not just the businesses but society as a whole. Increased prices can lead
to lower spending by consumers and layoffs affect entire households’ income.
The reason why U.S. tariffs with China have such a significant impact on American
society is because of the fact that China is one of the main trading partners with the U.S. China is
the primary source of imports for 23 states and is within the top three for 43 states 7. Figure 1,
below, shows the main import trading partner for each state.
Figure 1: Biggest Import Trading Partner Per State 7
The states most affected by the U.S. tariffs on China will be those whose main source of imports
are China.
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The two-way tariffs not only affect U.S. society but that of China as well. In fact China is
taking a larger hit economically due to the fact that around one quarter of Chinese exports go to
the U.S. whereas only around 8% of U.S. exports go to China 8. It is estimated by the Standard
and Charter bank of Hong Kong that if Trump continues with the plan to raise the tariffs to 25%
on January 1st, China’s economic growth rate could experience a dip of 0.6% 8. The tariffs have
also resulted in many losing their jobs in China due to firms moving “to Vietnam and Cambodia
where they can both avoid Trump’s tariffs, and, significantly, pay lower wages than in China” 8.
In addition, China’s retaliatory tariffs imposed upon the U.S. will affect Chinese shoppers by
raising the prices of U.S. made products.
Overall it seems as though these tariffs have done little to help the people of China or the
U.S. and have instead contributed to raising prices and causing widespread layoffs. There have been
some advantages however, particularly for the U.S., in terms of increased revenue for the federal
government. The U.S. treasury Department says that this year there has been a $5.4 billion increase
“in the collection of customs and duties so far this fiscal year” 9. Yet this increase is nearly negligible
relative to the overall U.S. budget and does little to help American citizens or deal with the growing
budget deficit. The Americans who are receiving the greatest benefit from these tariffs are those
working, or wishing to work in the primary metals industry. Within the past year, 7100 new jobs
have been created by manufacturers focusing on primary metals due to the increased investment after
these tariffs 9. Still, these new jobs only help a small proportion of the population compared to those
affected by increasing prices or potential unemployment.
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Government
The tariffs imposed on China by the U.S. government can clearly lead China to a
decrease in industrial productivity, deceleration on GDP growth rate, and a currency instability
(3). Therefore, raw materials such as steel and aluminum will decrease in availability and
manufacturing industries will halt their productions at a considerable rate. In a long-term
analysis, the United States’ GDP is expected to decrease by approximately 0.12 percent, which
accounts for nearly 30 billion US Dollars. In the case of China, the GDP is expected to plunge
by 0.38 percent (94 billion USD) (5). This information suggests that the current tariffs will tend
to decelerate China’s growth at an alarming rate and consequences that will affect the country’s
political, economic, and social infrastructure. The tariffs can also fluctuate the currencies rates
from both sides and ultimately affecting exporters’ way of doing business internationally. This
can lead to lower profit and its subsequently decreased revenue (5).
From a political perspective, the impact can be more drastic to China’s government goals set
for the year 2020 (4). If the generated revenue decreases, there will be no input to improve the
country’s economy or to straighten the public sector. In the last decade, the Chinese Communist
Party has promised to build a “moderately prosperous society in all respects” by 2020 (4). The
Chinese government also stated to improve innovation, research, and human development in rural
and regional areas; improving people’s quality of life and wellbeing. In order to achieve this goal,
the Chinese government has to increase its GDP at a rate of 6.2 percent over the three remaining
years. Also, there needs to be a creation of 11 million jobs by the end of 2018, equally distributed
income growth, and a relatively efficient energy consumption to reduce waste and contaminants (4).
Nevertheless, the imposed tariffs seem to put
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at risk this goal and according to Oxford Economics, the 6.5 percent GDP growth is considered
ambitious for China. To conclude, the best possible solution for the Chinese government
would be to revise its reforms for growth model and rationally adapt the infrastructure to
support a model based on services.
In recent news, China is seeking possible solutions to stop the increasing number of tariffs
imposed by the government of the United States of America in the first semester of 2018 (2).
According to the White House announcements, the importations from China were set a 10
percent rate and the tax has irrationally increased to 25 percent. As a way to solve this issue,
both governments are trying to open discussions to settle an agreement in order to enhance the
trading conditions. So far, these discussions have taken place via telephone and the expectations
for a future meeting are considered favorable. Although both countries are willing to find
solutions, there is still a high degree of uncertainty about the possible outcome. In the same way,
trade policy advisors have stated that the final decision to any trade would lie on president
Trump’s personal judgment and that no other economic entity would be involved. At last, the
purpose of this meeting would be to identify the main flaws that China may have and to
restructure the trading system to avoid intellectual infringement from both sides (2).
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Business
The Trump administration's economic policies are heavily centered around the notion to
encourage protectionism within businesses in the United States. Donald Trump believes that in
order to combat the overwhelming trade deficits the United States has with China, tariffs should
be imposed on numerous imports, more specifically on the steel and aluminum industry. As
businesses begin to adjust to the taxation on imported goods, manufacturers face three options
where they either adjust and accept the added expense, raise up the prices of their goods in
correlation to the cost of tariffs, or move their place of operation somewhere else. Donald Trump
claims such tax will lead to consumers and local businesses opting for domestic industries as a
cheaper and more convenient alternative, translating to an economic growth for American
businesses and create more jobs for the American citizen. A study by Forbes, however, has
reflected on the contrary, explaining that tariffs will just lead manufacturers to increase “their
operational costs and putting pressure on profit margins”. As a result, businesses that relied on
Chinese imported goods, which were much cheaper and economical than their american
counterpart due to the lower cost in labor and more efficient operational cost in China, will have
to purchase their needed steel or aluminium at a higher price from an American steel or
aluminum manufacturer. This will negate the economic growth of businesses that use steel and
aluminum as part of their operation, and only benefit a minority of the american steel and
aluminum producing companies. As an unintended and unpredictable consequence, Trump’s
policy disregards the effects the tariffs have on the vast majority of businesses that rely
considerably on global supply chains to equip their operations with steel and aluminum, directing
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them towards a much costly alternative as a mean to protect the steel and aluminum sector in the
United States.
Under those circumstances, a multitude of businesses have reported immense setbacks
from the tariffs, with “Mid-Continental Nail, the nation’s largest nail manufacturer,” were
“forced to raise prices after the tariff was imposed. This pushed orders down” as they relied on
imported steel, and saw the company lay off “60 employees, warning that the entire company
could be out of business by Labor Day”. Tariffs have also “discouraged buying American in the
case of American Keg, the only stainless steel beer keg manufacturer in the United States”. The
company was forced to lay off “10 employees” as it uses U.S. steel, Which saw a rise in it’s price
due to the imposed tariffs on steel, increasing the price of the American Keg product, which
ultimately corresponded to consumers shopping for alternatives and nullifying the profits for the
American company. Moreover, in the case of REC Silicon, a company which operates in
producing solar grade polysilicon, dramatic reduced production has forced them to lay off 40
percent of their workforce. Reasoning by board members included a reference to the trade war
between the United States and China, explaining it as a “direct result of the ongoing solar trade
dispute between China and the United States,”. Coca-Cola has also claimed that a rise in prices
due to an increase in cost of aluminum is likely, with CEO James Quincey explaining that the
change in input costs has affected the industry they operate in massively.
The automotive industry has also been directly impacted by the tariffs, with American
companies like Harley Davidson and Ford coming out as strong opposers of Trump’s economic
policies and tariffs. Harley Davidson has announced it “will begin to shift the production of
motorcycles headed for Europe from the U.S. to factories overseas”. While Ford’s infamous Ford
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Mustang, the most popular american sports car in China, will see a decline in profit and
economic growth, as China imposed retaliatory tariffs of 40 percent on imported U.S. cars. In
both cases, loss of profit and changing the place of operation outside the US will lead to
american jobs being lost as an outcome, inhibiting prosperity and forcing businesses to preserve
their profit margin, which begins by translating the damage to the american consumers and
workers. Trump’s tariffs have rather hurt businesses than protect them, and the aftereffect is
adding more pressure on the american consumer to withstand the increased prices.
Conclusion
Forming of World Trade Organizations and the trade deals within the US have paved the
path for the reducing of tariffs. Tariffs came back at a later stage of time in the event of the US
countries moving the factories to China. The factories were moved to various low-wage
countries who were then transported back to the place of the homelands. US imposed the tariffs
so that it will be able to stop China from that of intellectual property theft. US believes in the fact
that the Chinese laws are counteracting the property rights by adopting the process of driving the
foreign countries so that they enter into joint venture with that of the Chinese firms. US is of the
notion that this can help the Chinese partners in getting access to the new technologies so that
they can be replicated. China has responded to allegations by stating that they have not
committed any kind of theft and they do not possess legal authority that can help them in
responding to the regulations related to World Trade Organization. The criticism of US was
made by China on account of the export restrictions pertaining to high technology goods. US has
been instrumental in imposing tariff costing around $ 250 billion that was worth of the Chinese
exports. China has also retaliated by enacting tariff amounting to $ 110 billion on that of the US
exports. These tariffs will pave the path for raising prices within China along with US and this
will result in the imported goods costing more than owing to the factor of import tax. The

increased prices on that of the imported goods will help the domestic manufactured product to
raise the prices of the products that can help them in staying competitive. The increase in the
prices of the goods would be transferred to the consumers who would have to pay more for the
same product. Two-way tariffs will have an impact on US society also on the society of China.
China would be badly hit on account of the fact that one quarter of the Chinese exports would go
to U.S and around 8 % of the US exports will go to China. These tariffs would not be able to
help people coming from China or the US. It has resulted into raising the prices and paved the
path for lay offs within the organizations. The US has however been able to bring increased
revenue for federal government of United States. Tariffs that would be imposed on that of China
by US government would decrease industrial productivity within China. It would decrease the
growth rate on that of GDP and bring about instability in relation to state of government in the
country. The imposition of tariff would decrease the availability of the raw materials like steel
along with aluminium. It would cause the manufacturing industries to halt the process of
production at that of a considerable rate. United States would lose the GDP in the long term by
around 0.12 percent that would account to around 30 billion US dollars. It can be concluded that
GDP of China would decrease by around 0.38 percent. It can hence be stated that current tariffs
would decelerate the growth taking place within China. It would have an effect on the political
and the economic infrastructure of China. The loss of the aspect of profit in the US would pave
the path for loss in relation to American jobs and inhibit the prosperity of the region. The tariff of
Trump would harm the business instead of protecting them and it would add more pressure on
that of American consumer for withstanding increased prices.

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