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Quick Take: Tariffs and a China Trade Deal

May 1, 2018 by Matthew Rooney
We asked Bush Institute Director of Economic Growth Matthew Rooney what Americans should 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.


Author

Matthew Rooney
Matthew Rooney

Matthew Rooney joined the Bush Center in June 2015 following a career as a Foreign Service Officer with the U.S. Department of State. At postings in Washington and abroad, he focused on advocating market-driven solutions to economic policy challenges in both industrialized and developing countries, and on protecting the interests of U.S. companies abroad.

In Washington, Rooney was on loan to the U.S. Chamber of Commerce to create a high-level private sector advisory body for the Summits of the Americas, working closely with the U.S. private sector and with companies and business associations from throughout the Americas to negotiate an agenda to promote economic integration in the region.  Previously, he was Deputy Assistant Secretary responsible for relations with Canada and Mexico and for regional economic policy.  In prior Washington assignments, Rooney worked for then-Senator Fred Thompson, and supported negotiations to open global markets to U.S. airline services.

Abroad, Rooney was Consul General in Munich, a Consulate General providing a full range of Consular and export promotion services, supporting a permanent presence of 30,000 U.S. forces in two major base complexes, and carrying out a media and public relations initiative in support of U.S. diplomatic objectives in Germany. As Counselor for Economic and Commercial Affairs at the U.S. Embassy in San Salvador, El Salvador, he laid the groundwork for free trade negotiations between the United States and the five countries of Central America, and promoted market-based reforms for electrical power. Prior to this, he served in various posts in Germany, Gabon and Côte d’Ivoire.

Rooney studied Economics, German and French at the University of Texas at Austin and received his Master’s Degree in International Management at the University of Texas at Dallas.

Full Bio