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Quick Take: Tariffs and a China Trade Deal

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Learn more about Matthew Rooney.
Matthew Rooney

What should Americans hope for as trade deals are renegotiated with China?

Earlier this year, the administration announced higher tariffs on steel and aluminum imports on the grounds that these imports were a threat to national security. The tariffs were put on pause for 30 days to allow for talks with key trading partners like Canada, Mexico, Australia, the European Union (EU), and China to continue. Nonetheless, China, in particular, announced detailed retaliatory tariff lists, increasing tensions between China and the United States. 

On Monday, the administration decided to extend the hold on tariffs in view of ongoing talks with the North America Free Trade Agreement partners and the EU, and to give White House officials time to work with Beijing. We asked Bush Institute Director of Economic Growth Matthew Rooney what could happen next and what Americans should hope for as trade deals are negotiated.

What would a successful trade negotiation with China look like?

The key to any successful negotiation is to set a clear objective, with measurable milestones, and to stay focused. Since President Richard Nixon re-opened relations with China in 1972, the American objective has been to change China’s economic model – to persuade the Chinese to reduce the role of the state in their economy and open it to competition. We have set and achieved numerous goals along the way, enabling American companies to operate there and opening segments of the Chinese market to imported goods and services.

Obviously, a great deal remains to be done – broader market access, meaningful protection of intellectual property, and non-discriminatory regulation, to name a few – and we are a long, long way from changing China’s economic model. We can achieve these and other intermediate goals and continue to make progress toward our objective if we stay focused:  the issue is China’s behavior, not Mexico’s, Canada’s or Germany’s. The more fights we pick with these and other potential allies, the weaker our approach to China and the less likely we are to achieve our goals, let alone our objective.

How will steel and aluminum import tariffs impact the American and global economy?

Tariffs are always a drag on growth because they raise prices and reduce purchasing power. Ironically, import tariffs on industrial commodities like steel and aluminum also act as a tax on exports, increasing the cost of American goods and reducing our competitiveness in international markets. This is true even though our imports of steel and aluminum are a relatively small share of our consumption. Domestic producers will take advantage of the increased price of imports to raise their own prices. And, it is true even if the threatened tariffs ultimately don’t take effect because the uncertainty is already causing producers to rethink their production and marketing plans. As a result, unless the threat of tariffs succeeds in forcing a breakthrough change in Chinese behavior, we can expect job creation, and the United States and global economic growth to continue to weaken over the coming months.