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1. Tariffs and Monetary Policy: A Toxic Mix

Author:
Michael D Bordo and Mickey D. Levy
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The ratcheting up of tariffs and the Fed’s discretionary conduct of monetary policy are a toxic mix for economic performance. Escalating tariffs and President Trump’s erratic and unpredictable trade policy and threats are harming global economic performance, distorting monetary policy, and undermining the Fed’s credibility and independence. President Trump’s objectives to force China to open access to its markets for international trade, reduce capital controls, modify unfair treatment of intellectual property, and address cybersecurity issues and other U.S. national security issues are laudable goals with sizable benefits. However, the costs of escalating tariffs are mounting, and the tactic of relying exclusively on barriers to trade and protectionism is misguided and potentially dangerous. The economic costs to the United States so far have been relatively modest, dampening exports, industrial production, and business investment. However, the tariffs and policy uncertainties have had a significantly larger impact on China, accentuating its structural economic slowdown, and are disrupting and distorting global supply chains. This is harming other nations that have significant exposure to international trade and investment overseas, particularly Japan, South Korea, and Germany. As a result, global trade volumes and industrial production are falling. Weaker global growth is reflected in a combination of a reduction in aggregate demand and constraints on aggregate supply.
Topic:
International Trade and Finance, Monetary Policy, Economic growth, Tariffs, and Industry
Political Geography:
Japan, China, Europe, Asia, South Korea, Germany, North America, and United States of America

2. The U.S.-China Trade War: Is There an End in Sight?

Author:
Simon Lester and Huan Zhu
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Donald Trump was a trade “hawk” long before he became president. In the late 1980s, he went on the Oprah Winfrey show and complained about Japan “beating the hell out of this country” on trade (Real Clear Politics 2019). As president, he has continued with the same rhetoric, using it against a wide range of U.S. trading partners, and he has followed it up with action (often in the form of tariffs). While many countries have found themselves threatened by Trump’s aggressive trade policy, his main focus has been China. As a result, the United States and China have been engaged in an escalating tariff, trade, and national security conflict since July 2018, when the first set of U.S. tariffs on China went into effect and China retaliated with tariffs of its own. In this article, we explore the U.S.-China economic conflict, from its origins to the trade war as it stands today. We then offer our thoughts on where this conflict is heading and when it might end.
Topic:
Economics, International Trade and Finance, Tariffs, Trade Wars, and Donald Trump
Political Geography:
China, Asia, North America, and United States of America

3. The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China

Author:
Jie Bai and Jiahua Liu
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact on exports and exporting firms. As a result of shifting tax rebate burden, the reform leads to a greater incentive of the provincial governments to block the domestic flow of non-local goods to local export intermediaries. We develop an open-economy heterogenous firm model that incorporates multiple domestic regions and multiple exporting technologies, including the intermediary sector. Consistent with the model’s predictions, we find that rising local protectionism leads to a reduction in interprovincial trade, more “inward-looking” sourcing behavior of local intermediaries, and a reduction in manufacturing exports. Analysis using micro firm-level data further shows that private companies with greater baseline reliance on export intermediaries are more adversely affected.
Topic:
International Trade and Finance, Political Economy, Reform, and Tariffs
Political Geography:
China and Asia

4. Tariffs will ultimately harm US economy

Author:
Dong Yan and Zang Chengwei
Publication Date:
07-2019
Content Type:
Policy Brief
Abstract:
That Vice-Premier Liu He talked with US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin on the phone on Monday raises hope that China and the United States would resume the bilateral trade negotiations.
Topic:
Bilateral Relations, Economy, Tariffs, Trade Wars, and Trade
Political Geography:
China, Asia, North America, and United States of America

5. Trade trends show China should take the opportunity to diversify its market

Author:
Dong Yan, Ma Yingying, and Xu Tingting
Publication Date:
05-2019
Content Type:
Policy Brief
Abstract:
The China-US trade row has been drawing a lot of attention. A detailed review of the bilateral trade situation between China and the US from January through April is a good reference for the future trend. Also, as uncertainties loomed amid tariff hikes, some related US industries were afflicted, such as plants, minerals and precious metal in the first quarter.
Topic:
Markets, Tariffs, Trade Wars, Diversification, and Trade
Political Geography:
China, Asia, North America, and United States of America

6. Opinion: What Is China’s Core Economic Interest in Trade War?

Author:
Qiyuan Xu
Publication Date:
02-2019
Content Type:
Policy Brief
Abstract:
The trade conflict between China and the U.S. has lasted for more than half a year. The two sides have held several rounds of consultations, but agreements were later broken and tensions have only intensified. The spat will likely be protracted, with frictions to continue and possibly escalate for a period of time, given the two countries’ diverging interests, public opinions and historical experiences. A broad range of issues are involved in the trade dispute. For example, the U.S. has pressured China on forced technology transfer, talent strategy and industrial policy issues, as well as issues the two sides have long been at odds over, such as intellectual property rights, labor, environmental protection, stateowned enterprise reform and foreign exchange rates. Meanwhile, the U.S. has targeted products and sectors that go well beyond those in which China has a competitive advantage. The U.S. tariffs also target industries that the country plans to focus on for future development.
Topic:
Development, Tariffs, Trade Wars, Trade, and Strategic Competition
Political Geography:
China, Asia, North America, and United States of America

7. Americans Favor US-China Trade, Split Over Tariffs

Author:
Craig Kafura
Publication Date:
09-2019
Content Type:
Special Report
Institution:
Chicago Council on Global Affairs
Abstract:
Over the past 18 months, the United States and China have engaged in a steady escalation of tariffs. Beginning with steel and aluminum tariffs imposed by the Trump administration in March 2018, the trade conflict has expanded to cover hundreds of billions of dollars in bilateral trade. Recent rounds of negotiations have made no new progress and have led to both sides escalating further. The most recent US tariffs on Chinese imports went into effect on September 1, covering $112 billion of goods. Beijing has countered with retaliatory tariffs and has halted all agricultural purchases from the United States, a move targeted at already-struggling US farmers. While Americans broadly support engaging in trade with China, they are split along partisan lines on how to engage in that trade. Republicans support raising tariffs on Chinese imports and believe it will help the US economy in the long run, while Democrats oppose doing so and believe it will be harmful.
Topic:
International Trade and Finance, Bilateral Relations, Tariffs, and Trade Wars
Political Geography:
China, Asia, North America, and United States of America

8. A Quantitative Trade Model with Unemployment

Author:
Kyu Yub Lee
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Over the last decade, quantifying the welfare effects from tariff changes has become one of the main challenges among international trade economists. There are a number of quantitative trade models with micro-foundations which emphasize demand-side (Anderson and Van Wincoop 2003), supply-side (Eaton and Kortum 2002), Bertrand competition (Bernard et al. 2003), extensive and intensive margin (Chaney 2008), etc, and conclude that trade liberalization with tariff reductions leads an economy to reach a higher level of welfare compared to pre-liberalization (Costinot and Rodriguez-Clare 2014). While elegant, these models inducing gravity equations share the common assumption, a perfect labor market. Quantitative trade models with full-employment developed so far have not taken account of labor market frictions when evaluating the welfare effects from tariff changes. This paper aims to fill the gap in the trade literature by explicitly considering labor market frictions. I employ search-and-matching to a multi-country and multi-sector Ricardian model with input-output linkages, trade in intermediate goods, and sectoral heterogeneity, in order to quantify the welfare effects from tariff changes. The paper shows that labor market frictions can be a source of comparative advantage in the sense that better labor market conditions contribute to lower cost in production. Labor market frictions play a critical role in determining the probability of exporting goods to trading partners, and interact with bilateral trade share, price, expenditures, etc. Unemployment and changes in unemployment rates due to tariff reductions contribute welfare changes across countries, implying that welfare effects based on quantitative trade models with full-employment are likely to be biased. I confirm the biased welfare effects by revisiting Caliendo and Parro (2015), who conduct an analysis of the welfare effects from the NAFTA from 1993 to 2005. I show that the welfare gap between theirs and mine has a positive correlation with changes in observed unemployment rates across countries. With the constructed model, I further conduct counterfactual exercises by asking what would happen if China’s tariffs remain unchanged from 2006 to 2015. It turns out that there are mild welfare effects to trading partners in the world trading system.
Topic:
Tariffs, Economic Policy, Trade, Unemployment, and Welfare
Political Geography:
China and Asia

9. Trading the Global Future Part III: Bad Consequences

Author:
Dan Steinbock
Publication Date:
09-2018
Content Type:
Special Report
Institution:
Georgetown Journal of International Affairs
Abstract:
The Trump administration’s ‘America First’ policies come at a critical time in the global economy. These bad policies will have adverse consequences in international trade. In the absence of countervailing forces, they could unsettle the post-2008 global recovery and undermine postwar globalization.
Topic:
Globalization, International Trade and Finance, Economy, and Tariffs
Political Geography:
China, Asia, North America, and United States of America

10. China Responds to Trade Tensions Responsibly

Author:
Su Qingyi
Publication Date:
09-2018
Content Type:
Policy Brief
Abstract:
In March 2018, the United States slapped tariffs of 25 percent on steel imports and 10 percent on aluminum in the name of national security under Section 232 of the Trade Expansion Act of 1962. Then, the Office of the United States Trade Representative released a report on the investigation of China under Section 301 of the Trade Act of 1974, claiming China’s acts, policies, and practices regarding technology transfer, intellectual property, and innovation are “unreasonable and discriminatory, and burden U.S. commerce.” In early April, it issued a list of products imported from China subject to additional tariffs of 25 percent totaling US $50 billion. In June, Donald Trump approved the tariff imposition on US $50 billion worth of Chinese goods, officially starting from Chinese exports worth US $34 billion on July 6. The remaining US $16 billion was to be imposed later. In July, the U.S. issued another trade barrier of 10 percent tariff on imports from China with a value of US $200 billion. On August 1, U.S. Trade Representative Robert Lighthizer said the barriers were suggested by President Trump, who ordered to increase the amount to 25 percent.
Topic:
International Trade and Finance, Tariffs, Trade Wars, and Trade
Political Geography:
China, Asia, North America, and United States of America