In light of high inflation and rising prices, the Biden administration announced it’s considering dropping its current tariffs on Chinese imports to ease inflationary pressures. While the Trump tariffs were intended to protect American industries, they have largely hurt the U.S. economy by burdening U.S. industry and workers. And they invited retaliatory tariffs, primarily from China, on U.S. exports, which have damaged the economy even more.
Historical evidence and recent studies show that tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output. For example, the effects of higher steel prices, largely a result of the 2002 Bush steel tariffs, led to a loss of nearly 200,000 jobs in the steel-consuming sector, a loss larger than the total employment in the steel-producing sector at the time. It’s also worth noting that measures of trade flows, such as the trade balance, are accounting identities and should not be misunderstood to be indicators of economic health.
The Biden administration should provide relief to U.S. industries and workers by lifting the Trump tariffs, as they have failed in their objective to bring better trading practices and instead brought about economic damage. Further, the Biden administration should join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or sign bilateral trade agreements with other Asian-Pacific countries to continue to diversify U.S. supply chains, expand access to foreign markets, and promote U.S. economic growth. Learn more about Biden tariffs and trade proposals and explore our analysis of Trump trade war policies below.
The Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products, amounting to one of the largest tax increases in decades. The Biden administration has so far kept most of the Trump administration tariffs in place.
Former President Donald Trump’s proposed 10 percent tariff would raise taxes on American consumers by more than $300 billion a year—a tax increase rivaling the ones proposed by President Biden.
While the U.S. tariffs were intended to protect American industries, they have largely hurt the U.S. economy. Rather than pass on the tariffs to Chinese consumers, analysis shows that most U.S. firms simply bore the costs.
The Section 232 tariffs on imports of steel and aluminum raised the cost of production for manufacturers, reducing employment in those industries, raising prices for consumers, and hurting exports.
Policymakers actively marginalized the manufacturing sector by saddling them with cost recovery rules that prevent them from deducting the full cost of investment in physical plant and equipment. Going forward, policymakers should avoid haphazard fixes, targeted measures, and protectionism.
As lawmakers today look for ways to boost American industry and reduce costs for consumers, they should pay attention to the mountains of evidence that the Trump-Biden tariffs have harmed American consumers and businesses.
The overall U.S. tax and transfer system is overwhelmingly progressive, and understanding the extent—and source—of that progressivity is essential for lawmakers considering the trade-offs associated with each tax policy decision.
Focusing on the “threat” to European industry caused by the Inflation Reduction Act rather than internal tax system flaws puts the EU at risk of slower economic growth and possibly losing some of its important industrial base. It is also contrary to the EU’s geopolitical goals.
If the EU wants to strategically compete with economic powers like the United States or China, it needs principled, pro-growth tax policy that prioritizes efficient ways to raise revenue over geopolitical ambitions.
Before EU policymakers rush to implement massive reforms, they should remember the goals of the Single Market, its international limitations, and the role of tax policy.
The EU’s unilateral approach with carbon taxes, faster track on the global minimum tax, and threat of renewed efforts on DSTs means that U.S. policymakers face some hard choices. Policymakers on both sides of the Atlantic should keep in mind pro-growth tax and trade principles that promote a rules-based international order and increase opportunity.
As it stands, Pillar One would usher in the end of many digital services taxes (though perhaps not all) at the cost of increased complexity (in an already complex and uncertain system).
Even though tariffs are invisible, their effects clearly are not. They might be sold as a tool to strengthen the economy, but tariffs are just taxes that make everyone worse off.
French President Macron is coming to Washington, D.C., this week to ask President Biden the question on the minds of European leaders: “Why did you do this to us?”
A border-adjusted carbon tax that uses some of the revenue for pro-investment tax reform could improve U.S. more competitiveness while also addressing concerns with a carbon tax.
The Section 232 tariffs on imports of steel and aluminum raised the cost of production for manufacturers, reducing employment in those industries, raising prices for consumers, and hurting exports.