Trump Imposes Tariffs on China: What are Tariffs? How do They Impact the Economy?

By: Juliana S. Inman

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On March 22, 2018, President Donald Trump signed a presidential memorandum imposing tariffs and investment restrictions on China. These tariffs are estimated to affect as much as sixty billion dollars in Chinese imports to the United States. According to U.S. News writers, Ken Thomas and Paul Wiseman, the tariffs were “the boldest example to date of Trump’s ‘America first’ agenda, the culmination of his longstanding view that weak U.S. trade policies and enforcement have hollowed out the nation’s workforce and ballooned the federal deficit.” Moreover, these tariffs against China came just after the United States prepared to impose tariffs of twenty-five percent (25%) on imported steel and ten percent (10%) on aluminum, which were also meant to target China’s cheap steel and aluminum production. Although there are partisan politicians with varying opinions on the recent tariffs, “[b]usiness groups mostly agree that something needs to be done about China’s aggressive push in technology, but they worry that China will retaliate by targeting U.S. exports of aircraft, soybeans[,] and other products and start a tit-for-tat trade war.” The short-term and long-term economic impacts as a result of these tariffs have yet to be seen, but one thing is for certain: there will be economic effects, both positive and negative.

So, what exactly is a tariff? Merriam-Webster defines a tariff as “a schedule of duties imposed by a government on imported or in some countries exported goods.” More specifically, “[a] tariff is a tax on an imported good. Unlike a sales tax, which is placed on a good regardless of where it is made, a tariff specifically exempts domestically produced goods.” Tariffs result in a percentage increase in the price of the imported products subject to the tariffs. Although a price increase on consumer products has a negative connotation, whether a tariff is “good” or “bad” is often a matter of opinion and largely depends on the overall economic state at the time tariffs are imposed.

However, the imposition of tariffs typically affects, in one way or the other, various aspects of the economy. Tariffs often cause higher prices for domestic consumers, resulting in a loss of consumer surplus. However, “domestic producers increase their producer surplus as they receive a higher price than they would have without the tariff.” This often results in more jobs being created in the domestic economy. In contrast, it is possible that tariffs will cause a welfare loss, which occurs when “the reduction in consumer surplus is greater than the increase in producer surplus.” There is also a chance for a costly and economically devastating trade war as a result of retaliation by foreign countries impacted by the tariffs. Despite these possible negative impacts, tariffs may protect new and declining domestic industries and “strategic goods.” Furthermore, tariffs may result in a reduction in overall consumption and help lower the trade deficit.

Since the tariffs imposed against China are quite recent, it is difficult to predict what initial effects will result. Wall Street investors have expressed major concerns about retaliation that could cause increased costs for businesses and consumers. However, the United States reported a $375 billion deficit to China in 2017, which may be a cause for the closing of American factories and the loss of domestic jobs. If there is validity to the claim that the deficit to China has created a job loss, then President Trump’s tariffs may protect domestic employment and create more jobs in the United States. In the coming days we will certainly begin to see the immediate effects on these tariffs, and it remains whether they will help or hinder the U.S economy.

Juliana Inman is a second-year law student at Wake Forest University School of Law. She holds a Bachelor of Arts in English from the University of North Carolina at Wilmington and is a native of Beaufort, North Carolina. Upon graduation, Juliana intends to return to eastern North Carolina and practice family law.