The Heavy Cost of China’s Rising Tariffs: A Deep Look at the Impact on U.S. Businesses and Consumers

In recent years, the trade war between China and the United States has escalated significantly, with both sides imposing waves of tariffs on imports from the other country. While the goal may be to create leverage in trade negotiations, these tariffs come at a real cost to businesses and consumers on both sides of the Pacific. This article takes an in-depth look at the impact of China’s retaliatory tariffs on U.S. exports.

The Scale of China’s Retaliation

In 2018, the U.S. imposed tariffs on $250 billion worth of Chinese goods. China retaliated by slapping tariffs ranging from 5% too 25% on $110 billion of U.S. goods. This includes a 25% tariff on automobiles and a 5% tariff on parts, which has hit the automobile industry hard. China also added a 25% tariff on U.S. soybeans, wheat, corn, sorghum and beef, targeting America’s farmers.

Hardest Hit U.S. Industries

The U.S. industries being impacted the most by China’s retaliatory tariffs include:

Agriculture: Soybean exports have plunged and many farmers are struggling. China imported $12 billion in U.S. soybeans in 2017, but that dropped to just $3 billion after the tariffs kicked in.
Manufacturing: Higher costs on imported metals and Chinese-made component parts have hurt U.S. manufacturing competitiveness. This led to losses of $2.5 billion in 2018.
Automotive: The 25% tax has made U.S. car companies less competitive in China. Ford and Tesla have cut prices to offset the tariff costs.
Aerospace: Boeing estimates it could lose $20 billion in sales over several years due to reduced Chinese demand for its aircraft.
Tech: Tariffs on imported Chinese components have raised costs for U.S. tech firms like Apple.

Ripple Effects on the U.S. Economy

The tariffs have negatively impacted the U.S. economy in several ways:

Reduced exports to China cost the U.S. an estimated $18.4 billion in 2018.
Uncertainty caused by the trade war has dampened business investment, hindering growth.
Tariffs amount to a tax increase on American businesses and consumers, reducing economic output.
Industries like agriculture, manufacturing, retail and transportation have faced job losses due to reduced exports.
Higher import costs have driven up consumer prices, cutting into household budgets.
The trade war has hurt the stock market, reducing retirement account values.
Federal tax revenue may fall due to lower corporate profits and slower economic activity.

Efforts to Win a Trade Deal

To provide relief from the mounting tariffs, the U.S. and China have been engaged in protracted negotiations to reach a comprehensive trade deal. However, the talks have stalled as both Sideses have proven unwilling to budge on key issues. These include:

Forced technology transfers: The U.S. wants China to stop demanding U.S. firms share their tech.
Intellectual property theft: Rampant hacking and IP theft by China must end, the U.S. says.
Subsidies for state-owned enterprises: U.S. wants China to reduce massive state subsidies.
Increased access to China’s markets: U.S. is demanding China open its finance, cloud computing and other sectors.
Cybersecurity rules: U.S. says China’s cyber laws threaten U.S. national security.

The Path Forward

With neither side yet willing to compromise and cease further escalation, the trade war seems poised to continue well into 2020. This will inflict increasing damage on both economies unless a substantial deal is reached soon. However, for the good of businesses and consumers in both nations, it is imperative that the U.S. and China find a way to end this destructive trade war and come to a agreement that rebalances relations and provides relief on tariffs.

The Decline of Soybean Exports to China

In 2017, prior to the start of the trade war, China imported $14 billion of U.S. soybeans, accounting for 57% of total U.S. soybean export. However, in 2018, soybean exports to China dropped to just $3 billion, a 79% decrease. This represented just 26% of total U.S. soybean exports. The drop is direct result of China’s 25% retaliatory tariff on U.S. soybeans.

Automotive Industry Hit Hard

China imported 267,000 U.S.-made vehicles in 2018, down from 335,000 in 2017, a decrease of 20%. General Motors and Ford saw their auto sales in China drop by 10% and 37% respectively in 2018 compare to previous year. This show the significant impact of China’s 40% retaliatory tariff on U.S. autos. Many U.S. car brands have been forced to cut prices in effort to remain competetive in China.

Aerospace Exports Take a Hit

Boeing has estimated it could lose $20 billion in aircraft sales to China over next 20 years if trade war is not resolved. In 2018, China spent $13 billion purchasing planes from Boeing, down from $17 billion year before. With China’s aircraft market estimated to reach $1.2 trillion over next 20 years, the trade war puts Boeing at risk of losing significant chunk of busines to Airbus and other rivals.

References:

http://www.nber.org/papers/w24056.pdf

https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF

https://ustr.gov/sites/default/files/USTR%20301%20Fact%20Sheet.pdf

https://www.worldstopexports.com/soybean-exports-country/
https://www.forbes.com/sites/kenrapoza/2018/07/30/trade-war-casualties-how-u-s-businesses-lost-in-china/
https://www.cnbc.com/2019/06/17/boeing-ceo-says-china-tariffs-could-hurt-company-by-20-billion-dollars.html

https://www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart
https://www.bloomberg.com/news/articles/2019-08-02/behind-the-u-s-trade-war-with-china-is-long-simmering-dispute
https://www.uschina.org/reports/costs-us-china-trade-war