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For
people in the commenting business, making predictions is always
dangerous, particularly if they occur shortly before the event being
predicted because of the risk of people noticing if you are wrong. If
the prediction and the event occur far apart, nobody remembers the
former when the latter arrives, although if you are right, you can
regularly remind everybody. The other way to avoid humiliation is
incoherence. My older son, who has a PhD from the University of Chicago,
once told me he made a wise decision to study mystics because they’re
completely incoherent. No one understands
what they are talking about, so the people who write about them are
never wrong. Another approach is to apply the old economist joke about
making predictions: provide a number or a date, but never both at the
same time.
In
my case, the price of being wrong is fairly low—and is frequently
paid—so I will ignore the advice above and fearlessly wade into the
China waters, even though it appears a decision on the tariffs may be
imminent. (On the other hand, we all thought that last October, and
we’re still waiting, so, maybe not.)
Rumors of a decision
on eliminating the Trump China tariffs have been swirling around, and
the president has been asked about it several times in the past few
days. While the debate and the options on the table appear not to have
changed very much since last fall, the issue has taken on renewed
urgency because of inflation and because the first two tranches of
tariffs are scheduled, by law, to expire in
July and August, so a decision on retaining them has to be made.
Interesting wrinkle: the first tranche of tariffs expired on July 5, and
while everyone expected them to be renewed temporarily while a decision
is pending, the Office of the U.S. Trade Representative has not yet
officially done so, which raises the question of whether they are still
in effect (I smell litigation).
The
likely outcome of the debate has been widely predicted, and I will not
disagree with the crowd. Some of the tariffs will be removed; the
process for seeking exclusions from others will be revived; and a new
Section 301 investigation against Chinese unfair trade practices will be
instituted that could lead to additional tariffs later on.
Each
of those actions hides many details that must be resolved. First, which
tariffs will be removed? The betting is on a small number of consumer
items that have no security implications like bicycles and apparel. This
will be presented as part of the fight against inflation, although the
three studies done on the subject suggest removing all the tariffs would
have only a small positive impact. The effect of partial removal would
be even less. It would be a bit greater if China simultaneously removes
its retaliatory tariffs on an equivalent value of U.S. exports. I hope
the administration
will remember to ask China to do that.
The
exclusion process has been embroiled in controversy from the beginning,
and restarting it won’t change that. Issues include the criteria for
obtaining an exclusion, the documentation required to make the case, and
the length of the decisionmaking process. There is a provision in the
Senate version of the China bill that would restart the process, and
Ambassador Katherine Tai has been publicly unenthusiastic about it on
the grounds of not wanting to give up leverage, so I expect any restart
will be done very slowly and carefully.
A
new Section 301 investigation has been anticipated for a long time. If
the president wants to take any new adverse trade actions, it is a
necessary predicate. It also gives the administration a year to conduct
the investigation, which allows them to kick the can on new tariffs well
past the midterm elections.
So,
what does all this mean? Economically, the short-term impact will be
small and will depend on the number of tariffs eliminated, although even
removing all of them would not make a huge difference. A restarted
exclusion process and a new Section 301 investigation will have no
immediate effect.
Politically,
it is hard to see this as a victory for the administration. Regardless
of the decision, the business community will say it is too little, and
organized labor will say it is too much. It is always hard to sort out
the crocodile tears from real grief, but if the president does not touch
the steel and aluminum tariffs (which are in a separate category
anyway), labor will not have much to seriously complain about.
Fundamentally,
the decision—whatever it is—solves nothing. Inflation remains; all the
Chinese unfair practices the tariffs were intended to punish remain;
U.S.-China relations remain the worst since Nixon went to China; and
everybody (business, labor, Chinese officials, think tanks) remains
grumpy. This is depressing because it is a well-intentioned effort to
dig us out of the hole Trump dug, but, as seems to be the norm right
now, the president is not likely to get any credit for it, however
well-intentioned it may be.
William
Reinsch holds the Scholl Chair in International Business at the Center
for Strategic and International Studies in Washington, D.C.
Commentary is
produced by the Center for Strategic and International Studies (CSIS), a
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