I have one final post on U.S. Trade Rep. Katherine Tai's event at the University of Chicago last week, addressing issues related to China and tariffs. First up, there was this exchange about China:
Q: Some people, even Trump haters, will give him some credit for beginning to tackle the issue of what we do about China. I think you described it as a switch to a different paradigm, of unilateral US pressure to try to change Beijing's practices. What do you think the Trump administration got right and what do you think they got wrong?
Tai: So I think that it's become a commonly accepted part of the policy conversation that the Trump administration, including my predecessor, Bob Lighthizer, who is very smart, really put their finger on a diagnosis, that there's something significantly out of whack and out of balance in the US trade relationship with China. And I think that there's a lot of focus from the Trump administration on the trade balance. I think that the trade balance is not everything. It is an important indicator, and I think it does show that out of balance nature of our trading relationship. So I think that that's a really important thing, even through all of the emotion and drama of politics, to have a sobriety about diagnoses, so that you can have a serious and smart and strategic assessment of prescriptions for addressing the problem and the challenges.
Did Trump "begin to tackle the issue of what we do about China"? Or did his "unilateral US pressure" approach move us away from tackling the issue of what we do about China? I'm inclined towards the latter characterization, because, as far as I can tell, the unilateral approach of the Trump administration has failed to change China's non-market policies and practices. There were other approaches that could have worked better, but the Trump administration didn't take them.
As to the trade balance, I would go further than Tai in criticizing the emphasis on this metric. The causes of the U.S. trade deficit are more about macroeconomic policies than trade policies, and people's mistaken focus on the trade balance leads to a lot of bad policy outcomes. To be clear, from what I can tell based on an examination of actual trade policies, it is true that China is more protectionist than the U.S. But the trade balance isn't the best place to look when you are trying to make comparisons about how protectionist countries are.
Turning to tariffs, there was this exchange:
Tai: But in terms of the competition and rivalry, and the need to bring better balance to the relationship, tariffs are a tool. I know there's a lot of drama and emotion around tariffs too, but take it from your Trade Representative, tariffs are a tool. And objectively, we have relied on tariffs for a long time as a playing field leveler, as a remedy for unfair trade. In that sense, tariffs are a really important tool of defense. It's a defensive tool. You're trying to use the tariffs to counterbalance the advantages that have come from unfair trading practices. ...
Q: So I've heard what you've said about tariffs and at the risk of pressing an issue that you consider unimportant, how useful a tool are they defensively? Even if they are a defensive tool, are they a useful defensive tool or are they a not useful defensive tool?
Tai: It's all about how you use them. And if you use them smartly, if you use them with the goal in mind of addressing unfairness to level[] the playing field, then they're absolutely useful.
There are lots of tariffs out there these days, and it may be worth breaking them down into the following primary categories:
- Ordinary tariffs in the tariff schedule.
- AD/CV tariffs that are supposed to deal with specific kinds of unfair trade, although I'm not sure how well calibrated they are to doing that.
- Safeguard tariffs that address fairly traded products, although sometimes politicians' press releases blur the distinction between unfair and fair trade in this context.
- Section 301 tariffs that deal with a broad range of allegations about unfair trade practices that keep U.S. goods out of foreign markets. (But are they effective at generating changes to these foreign practices? I don't think the track record is that great.)
- Section 232 tariffs, which operate similarly to safeguard tariffs but are ostensibly centered on security issues.
With this in mind, I have some questions: Which of these tariffs are about "leveling the playing field," and which have other purposes? Are some of these tariffs intended to change practices abroad, and do they accomplish that? Don't some tariffs have an "offensive" motivation, for example to encourage the development of a domestic industry, and do they accomplish that? How do any of their accomplishments compare to the economic costs they impose on U.S. consumers and businesses? And do tariffs have additional negative consequences by fostering political dysfunction?
What I would like to see is a study (maybe by the International Trade Commission?) of how useful tariffs have been for achieving their various purposes, and also taking into account any downsides. Tariffs may be a tool, but how well does that tool work? For decades now, people have been scrutinizing trade agreements and trade liberalization. But I think that has distracted everyone from one of the main problems that trade agreements were trying to address, which is the negative impact of tariffs on the economy and on good relations with other countries.
