Understanding the Economic and Political Effects of Trump's China Tariffs

Although President Trump has persistently claimed that China is paying billions of dollars in tariffs imposed on Chinese imports to the United States, empirical evidence indicates that U.S. consumers are bearing the cost of the tariffs: $51 billion in increased prices and a net loss of $7.3 billion to the U.S. economy. The unilateral power-based approach to trade used by the Trump Administration has also resulted in unexpected economic and political costs in key Midwestern states that helped propel Trump to the U.S. presidency in 2016. These costs have led to reverses for the Trump Administration in the mid-term elections of 2018 and could ensue in further electoral losses. As both political parties currently hold little affection for China, the United States could continue to use tariffs against China and other countries as trade policy no matter which party controls the U.S. presidency. For these reasons, a study of how to most effectively use a power-based approach to trade is both useful and timely. This study indicates that a power-based approach can be used most effectively against countries that lack either the economic power or the political will to engage the United States in a prolonged trade standoff. While most nations appear to fall into one or both of these categories, China is not one of them. China has the economic power to fight a trade war and China believes that it must stand up to the United States. When used against China, the power-based approach carries greater risks because its economic and political effects are difficult to predict and because this approach is inherently more uncertain than the cooperative approach of the World Trade Organization that the United States has rejected. Using a power-based approach against China could backfire because China has the economic power and political will to endure a prolonged battle and play a dangerous game of mutual pain and destruction with the United States.