Tariffs Imposed by the Trump and Biden Administrations

Under the Trump administration, a series of tariffs were imposed, resulting in an $80 billion tax increase on imports valued at $380 billion (based on 2018 figures). These tariffs affected various products, including those from China, such as steel, aluminum, washing machines, and solar panels. In response, other countries imposed retaliatory tariffs. While the Biden administration has made some exemptions and changes to specific tariffs, most of them have been retained.

Effects of Tariffs on the US Economy

According to an analysis conducted using the Tax Foundation Taxes and Growth Model, tariffs have detrimental effects on the overall well-being of the economy. They lead to a net loss in production, job opportunities, and income levels. Moreover, tariffs tend to disproportionately burden lower-income consumers.

The Tax Foundation model predicts that the combined tariffs implemented by the Trump and Biden administrations will result in a long-run reduction of 0.21 percent in GDP, a 0.14 percent decrease in wages, and the elimination of 166,000 full-time equivalent jobs. Additionally, retaliatory tariffs imposed by other countries on US exports are estimated to further reduce US GDP by 0.04 percent and eliminate 29,000 full-time equivalent jobs.

Tariffs’ Impact on Prices and Economic Growth

Economists widely agree that free trade enhances economic output and income, while trade barriers, such as tariffs, hinder economic growth. Historical evidence demonstrates that tariffs raise prices and limit the availability of goods and services for both US businesses and consumers. Consequently, this leads to lower income levels, reduced employment opportunities, and diminished economic output.

Tariffs can reduce US output through various channels. One possibility is that tariffs may result in higher prices for producers and consumers. By increasing the cost of parts and materials, tariffs raise the prices of goods that rely on these inputs, thereby reducing private sector output. Consequently, both capital owners and workers experience lower incomes. Furthermore, higher consumer prices stemming from tariffs diminish the after-tax value of labor and capital income. These elevated prices, by reducing returns to labor and capital, create disincentives for Americans to work and invest, ultimately leading to decreased economic output.

Alternatively, the imposition of tariffs may cause the US dollar to appreciate, which could offset the potential increase in prices for US consumers. However, a stronger dollar would make it more challenging for exporters to sell their goods on the global market, resulting in reduced revenues. This reduction in revenues would also lead to lower output and income for both workers and capital owners, thereby further discouraging work and investment and ultimately resulting in a smaller economy.

Section 232: Steel and Aluminum Tariffs

In March 2018, President Trump announced the imposition of a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. Based on 2018 import levels, these tariffs would have amounted to $9 billion for steel and $1.8 billion for aluminum.

The US later excluded several countries from these tariffs. For instance, Australia was permanently excluded, while quotas were implemented for steel imports from Brazil and South Korea, as well as for steel and aluminum imports from Argentina. Furthermore, tariffs on steel and aluminum from Canada and Mexico were lifted under the Trump administration. The scope of steel and aluminum tariffs was expanded in 2020 to cover specific derivative products.

Under the Biden administration, certain steel and aluminum tariffs were replaced with a tariff rate quota system. These quota systems came into effect for the European Union, Japan, and the United Kingdom in 2022 and will lead to a reduction in tariff revenue.

Section 301: Tariffs on Chinese Products

The United States currently imposes a 25 percent tariff on approximately $250 billion worth of imports from China and a 7.5 percent tariff on around $112 billion worth of Chinese imports.

The Trump administration initiated an investigation of China’s unfair trade practices in August 2017. Subsequently, tariffs on up to $60 billion worth of Chinese imports were announced. The administration identified approximately $50 billion worth of Chinese products subject to a new 25 percent tariff. The implementation occurred in two stages, with the first stage taking effect in July 2018 and the second stage in August 2018. Overall, these tariffs amounted to a $12.5 billion tax increase.

In September 2018, the Trump administration introduced stage three tariffs under Section 301, imposing a 10 percent tariff on $200 billion worth of Chinese goods. This tariff was scheduled to increase to 25 percent in January 2019, but the increase was delayed until May 2019. Several other tariff announcements were made under the previous administration, with subsequent changes and exemptions.

The Biden administration has maintained the Section 301 tariffs on China, contributing to tariff revenues.

WTO Dispute: Tariffs on the European Union

In October 2019, the United States won a long-standing World Trade Organization (WTO) dispute against the European Union. The WTO ruling granted permission for the US to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. These tariffs included a rate of 10 percent on aircraft and 25 percent on agricultural and other products.

However, under an agreement reached by the Biden administration, tariffs on the European Union were suspended for five years, starting in summer 2021.

Section 201: Tariffs on Solar Panels and Washing Machines

In January 2018, the Trump administration announced tariffs on imports of washing machines for three years and solar cells and modules for four years, following a Section 201 investigation.

These tariffs resulted in a tax increase of $0.4 billion for washing machine imports and $0.2 billion for solar cell and module imports, based on 2018 import values. The washing machine tariffs were extended by the Trump administration, but they have since expired. The Biden administration extended the solar panel tariffs for four years, while also providing temporary exemptions for imports from specific Southeast Asian nations.

It is important to note that the total revenue generated by tariffs is lower than the revenue indicated, as tariffs reduce real income, thereby decreasing other tax revenues.

Tax Foundation Model: Impact of Trump-Biden Tariffs on Economy

Introduction

The Tax Foundation, a renowned economic research organization, has conducted a comprehensive analysis of the potential consequences of the Trump-Biden tariffs on the American economy. This evaluation focuses on various key indicators such as long-run GDP, wages, and employment. It is important to note that the analysis excludes the solar panel tariffs due to their relatively insignificant impact.

Projected Impact of U.S. Imposed Tariffs

Long-Run GDP Reduction

According to the Tax Foundation model, the implementation of the Trump-Biden tariffs is projected to result in a decrease of 0.21 percent in long-run Gross Domestic Product (GDP). This reduction is equivalent to approximately 12 percent of the overall long-run impact anticipated from the Tax Cuts and Jobs Act, a significant tax reform passed earlier. It is estimated that the Tax Cuts and Jobs Act would contribute to a long-run GDP growth of 1.7 percent.

Wage Implications

In addition to the impact on GDP, the analysis reveals that wages would also be affected. The Tax Foundation model predicts a decrease of 0.14 percent in wages as a result of the Trump-Biden tariffs. This reduction underscores the potential consequences on individual incomes and highlights the significance of the tariffs on the broader labor market.

Employment Effects

Furthermore, the Tax Foundation’s model projects a decline in employment due to the implementation of the tariffs. Approximately 166,000 full-time equivalent jobs are expected to be lost. This estimation emphasizes the potential consequences of the Trump-Biden tariffs on the labor market and underscores the importance of considering the broader impact on employment opportunities.

The Impact of Tariffs on Trade Volumes

Declining Imports and Reduced Trade

Since the implementation of tariffs, there has been a noticeable decline in the volume of imports, even prior to the emergence of the COVID-19 pandemic. Notably, one of the major contributing factors to this decline has been the decreased trade with China, as the affected imports experienced a significant reduction following the imposition of tariffs. Consequently, the reduced trade has had adverse consequences for U.S. consumers, leading to a decrease in available options and an increase in prices.

Diminished Imports Prior to the Pandemic

The imposition of tariffs exerted a discernible influence on the trade dynamics, resulting in a decline in the importation of affected goods. This effect was observed even before the onset of the COVID-19 pandemic, emphasizing the significance of the tariff policy in shaping trade volumes. Particularly noteworthy is the substantial decrease in trade with China, wherein imports of affected goods experienced a significant downturn subsequent to the imposition of tariffs.

Consequences for U.S. Consumers

The reduction in trade volumes due to tariffs has had repercussions for U.S. consumers. With fewer imports available, consumers are faced with limited choices when it comes to purchasing goods affected by the tariffs. Furthermore, the decrease in trade has contributed to higher prices, placing an additional burden on consumers’ wallets. Consequently, the consequences of reduced trade resulting from tariffs have had a direct impact on the accessibility and affordability of goods for U.S. consumers.

Imposition and Threat of Retaliatory Tariffs

Introduction

In response to the United States’ actions, numerous jurisdictions have put forth proposals and implemented retaliatory tariffs. This article provides an overview of the current situation, outlining the details in the accompanying tables.

Retaliation against Section 232 Steel and Aluminum Tariffs

The ongoing retaliatory measures against the Section 232 steel and aluminum tariffs focus on targeting American products valued at over $6 billion. The estimated total tax amount for these retaliatory measures stands at approximately $1.6 billion. It is important to note that the tariff revenue figures for Turkey, India, Russia, and Canada are based on credible news reports.

Reconsideration and Cancellation of Retaliatory Tariffs

It is noteworthy that Mexico, Canada, and the European Union have made the decision to cancel their retaliatory tariffs imposed under Section 232. This indicates a shift in their stance and a move towards de-escalation and resolution.

China’s Response: Tariffs on US Goods

To counter the United States’ Section 301 tariffs, China has implemented a series of tariffs on various American goods. These retaliatory measures were taken as a direct response to protect Chinese interests and ensure a fair playing field in international trade. The total value of the targeted U.S. goods subjected to these tariffs exceeds $106 billion.

Economic Impact: Estimated Tax and Excluded Tariffs

As a result of China’s retaliatory tariffs, it is estimated that the imposed taxes on U.S. goods amount to nearly $11.6 billion. However, it is important to note that the economic analysis excludes the stage 4b tariffs due to their cancellation under Phase 1 of the U.S.-China trade deal. The exclusion of these tariffs signifies a shift in the trade landscape between the two nations, as negotiations have led to the reduction of tariffs associated with Stages 3 and 4a.

Phase 1 Trade Deal: Tariff Reductions

The U.S.-China trade deal, known as Phase 1, played a significant role in mitigating the impact of the ongoing trade dispute. As part of this agreement, both countries made concessions, resulting in reduced tariffs. Specifically, tariffs associated with Stages 3 and 4a were decreased, further signaling a willingness to promote trade cooperation and restore economic stability.

Retaliatory Tariffs and Revenue Distribution

When countries retaliate against the United States by imposing tariffs in response to Section 232 and Section 301 actions, it is the governments of those countries that receive the tariff revenues. Therefore, the additional tariffs do not result in an increase in revenue for the United States.

The Impact on U.S. Revenue

As a consequence of retaliatory tariffs, the United States does not experience any direct financial gains. The revenue generated from these tariffs flows to the countries imposing them, as a means of balancing the perceived economic impact caused by the initial actions taken by the United States.

Impact of Retaliatory Tariffs on the U.S. Economy

Reduced GDP and Employment

Our analysis indicates that the implementation of retaliatory tariffs is projected to have a notable impact on the United States’ Gross Domestic Product (GDP) and employment figures. It is estimated that these tariffs will lead to a decrease of 0.04 percent in the country’s GDP, amounting to a substantial $9.4 billion reduction.

Furthermore, the imposition of retaliatory tariffs is expected to result in a decline in full-time employment by an equivalent of 29,000 jobs. This reduction in job opportunities could have wide-ranging effects on various sectors of the U.S. economy.

Differences in Revenue Generation

It is important to note a significant distinction between the tariffs imposed by the United States and those imposed by foreign jurisdictions. While the U.S. tariffs contribute to federal revenue, the same cannot be said for tariffs imposed by foreign countries. These foreign tariffs do not generate any revenue for the United States. However, their implementation inevitably leads to a decrease in U.S. output.

In other words, the retaliatory tariffs imposed by foreign jurisdictions may negatively impact the U.S. economy without providing any compensatory financial gains for the federal government. This discrepancy in revenue generation underscores the potential economic consequences that arise from trade disputes and retaliatory measures.