The Biden administration announced major tariff hikes on $18 billion in products imported from China, citing a desire to “protect American workers and businesses from China’s unfair trade practices.” While the rhetoric perhaps sounds good to some, these tariffs will hurt exactly the industries the administration claims to support.
The tariff increases build on ‘Section 301’ tariffs originally imposed during the Trump administration, the culmination of an investigation by the U.S. Trade Representative (USTR) into China’s unfair trade practices. The Biden Administration's review makes it clear those concerns are still justified. China’s government continues to force technology transfer and steal intellectual property from foreign companies. But in imposing these sweeping new tariffs, the Biden Administration is applying a cure that’s worse than the underlying disease – and doubling down on tariffs President Biden himself called ‘irresponsible’ before taking office.
Ultimately, these tariffs are taxes paid by American businesses and consumers. No matter what administration officials like USTR Ambassador Tai or Treasury Secretary Yellen may claim, that means they drive up prices. According to research by the Consumer Technology Association, American companies have paid an estimated $55 billion in extra Section 301 tariffs for tech products to date.
The Biden administration’s latest action will make a bad situation worse – quadrupling tariffs on Chinese electric vehicles (EVs) from 25% to 100%, increasing the rate on EV batteries and battery parts from 7.5% to 25%, and forcing companies to pay more for the critical minerals they need for products made in America. The White House’s decision to ignore input from stakeholders and continue – and in some cases even increase – Section 301 tariffs will fan trade tensions with China, undermine U.S. companies’ competitiveness, and weaken worker productivity. Even worse, new tariffs on electric vehicles, lithium-ion batteries, and critical minerals will hurt U.S. innovation and undermine the administration’s own stated sustainability goals.
To make up for the higher costs on companies, the administration is giving away billions in federal subsidies and grants to residential households. Thanks to rampant spending during the pandemic, our government is already in debt so deep that simply paying the interest costs more than the Defense Department budget.
While the tariffs have done little to meaningfully change China’s state-directed industrial policy, they have cost American jobs. According to a January 2021 U.S.-China Business Council (USCBC) study, the Trump administration’s trade policies cost the United States at least a quarter of a million jobs. There’s also little sign that they are inducing a shift in manufacturing back to the United States over the long term, instead pushing supply chains to less-expensive third countries.
In taking this swing at China, the Administration – with support from leaders in the Democratic and Republican parties – is simply hitting American businesses and American consumers. In advance of the general election in November, political leaders are goading each other to be as ‘Tough on China’ as possible, leading to a race to the bottom as both sides seek to add new trade barriers. Neither party seems to mind that this race will be disastrous for the competitiveness and innovative capacity of the U.S. private sector.
There’s a better way. Our leaders should focus on policies that can help the private sector succeed. That includes crafting new trade agreements and expanding existing ones to reduce trading costs with friends and partners like the United Kingdom, Japan, Vietnam, Taiwan, Malaysia, and Thailand. In the meantime, policymakers should follow the lead of pragmatic officials like Governor Jared Polis of Colorado and acknowledge the clear truth: tariffs don’t help Americans. They simply hobble the innovative power of the American economy.
