At the G-20 summit, President Trump did an about-face and reopened negotiations with Chinese President Xi Jinping. He held off on levying additional tariffs on $300 billion more in Chinese imports, meaning that American businesses can breathe a sigh of relief — for now. But a pause on new tariffs gives no more certainty to the markets than they had before the presidents met. Presidents Trump and Xi must craft a trade deal that eliminates tariffs altogether. Any tariff, no matter its scope, is bad news. Here are five reasons why:
1. Tariffs are a tax on American consumers and businesses. Tariffs are taxes. The fact is, the consumer pays these taxes, not the Chinese government. Even the president’s top adviser, Larry Kudlow, has said this. While the president says these taxes are payments from China, the truth is that they are taxes paid by American businesses and consumers as the costs are passed along and directly impact the price paid. There is simply not enough profit in these items to “include” an increase in costs.
2. China treats American companies unfairly, but the president has other alternatives. The president is correct that China needs to be forced to change. However, there are more effective options:
- The president can pursue relief through the World Trade Organization’s dispute settlement process.
- He can have the U.S. rejoin the Trans-Pacific Partnership (which is made up of several countries creating a free trade zone to compete with China).
- He can impose the same requirements on Chinese companies that China imposes on American companies, including limiting their ability to purchase real estate, forcing them to join partnerships with U.S. companies, and insisting on technology transfer.
- He can limit access by bad-actor Chinese companies to the U.S. banking and financial system.
- He can work and coordinate with our European allies to gain market access.
All of these tactics would put pressure on China without causing collateral damage to U.S. businesses and citizens.
3. Backing China into a corner is not helpful. China is able to play the long game. Their worldview and political structure make the tariff route more sustainable for them than it is for the U.S. Humiliating China through the current “tit-for-tat” strategy only emboldens them. In the Chinese concept of “face” (miànzi), dignity is of the utmost importance; shame is to be avoided at all costs. For thousands of years, their culture has never responded well when they are put in a position of “losing face.” This strategy will only result in retaliation and pit China against the U.S. on other important trade and geopolitical issues.
4. The president is losing support on this issue and is jeopardizing passage of the new NAFTA. Republican senators like Chuck Grassley, R-Iowa, have said that they will not allow the new NAFTA to be passed by the Senate until the tariffs are withdrawn. President Trump’s new tariff announcement has directly contributed to stock market drops this past week, costing Americans billions in retirement accounts, pension funds, and savings. The market drops reflect investor beliefs that tariff retaliation is bad for our national economic future.
5. The tariffs are hurting our financial leadership. Although the dollar remains the world’s reserve currency, U.S. economic dominance is weakening. The effect of these tariffs on the stock market and the global economy are reminiscent of the Smoot-Hawley tariffs of 1931, when Congress ignored the pleas of thousands of economists and placed heavy taxes on imports, leading into the massive global slowdown we now know as the Great Depression. The only economist supporting these tariffs today as good policy is the one in the White House advising President Trump.
Every reasonable person agrees that China has been unfair in its trade policies, and this needs to stop. The issue has only worsened over time. While it is enticing to think that simply adding tariffs will “bring China to their knees,” no one who has ever had success negotiating with China sees the tariff strategy as the answer.
This issue is solvable. There is enough concern by the Chinese to be at the negotiating table. We have alternatives that can put pressure on the Chinese government and achieve long-term success. Tariffs only hurt the U.S. — and specifically the U.S. consumer.
Let’s stop this misguided approach and work together to end the trade imbalance before it inflicts permanent damage on our people, their jobs, and our economy.
Gary Shapiro is the president and CEO of the Consumer Technology Association (CTA)™, the U.S. trade association representing more than 2,200 consumer technology companies, and a New York Times best-selling author. He is the author of Ninja Future: Secrets to Success in the New World of Innovation.
