Understanding the Economic and Political Effects of Trump's China Tariffs

Wiliam and Mary Business Law Review (Forthcoming)

Ohio State Legal Studies Research Paper No. 563

33 Pages Posted: 27 Aug 2020

See all articles by Daniel C. K. Chow

Daniel C. K. Chow

Ohio State University College of Law

Ian Sheldon

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Date Written: August 25, 2020

Abstract

Although President Trump has persistently claimed that China is paying billions of dollars in tariffs imposed on Chinese imports to the United States, empirical evidence indicates that U.S. consumers are bearing the cost of the tariffs: $51 billion in increased prices and a net loss of $7.3 billion to the U.S. economy. The unilateral power-based approach to trade used by the Trump Administration has also resulted in unexpected economic and political costs in key Midwestern states that helped propel Trump to the U.S. presidency in 2016. These costs have led to reverses for the Trump Administration in the mid-term elections of 2018 and could ensue in further electoral losses.

As both political parties currently hold little affection for China, the United States could continue to use tariffs against China and other countries as trade policy no matter which party controls the U.S. presidency. For these reasons, a study of how to most effectively use a power-based approach to trade is both useful and timely.

This study indicates that a power-based approach can be used most effectively against countries that lack either the economic power or the political will to engage the United States in a prolonged trade standoff. While most nations appear to fall into one or both of these categories, China is not one of them. China has the economic power to fight a trade war and China believes that it must stand up to the United States. When used against China, the power-based approach carries greater risks because its economic and political effects are difficult to predict and because this approach is inherently more uncertain than the cooperative approach of the World Trade Organization that the United States has rejected. Using a power-based approach against China could backfire because China has the economic power and political will to endure a prolonged battle and play a dangerous game of mutual pain and destruction with the United States.

Keywords: China, United States, International Trade Law, World Trade Organization, Tariffs, Economics

JEL Classification: K33

Suggested Citation

Chow, Daniel Chee King and Sheldon, Ian, Understanding the Economic and Political Effects of Trump's China Tariffs (August 25, 2020). Wiliam and Mary Business Law Review (Forthcoming), Ohio State Legal Studies Research Paper No. 563, Available at SSRN: https://ssrn.com/abstract=3680630 or http://dx.doi.org/10.2139/ssrn.3680630

Daniel Chee King Chow (Contact Author)

Ohio State University College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States
614 292-0948 (Phone)
614 292-3202 (Fax)

Ian Sheldon

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

234 Agricultural Administration Building
2120 Fyffe Road
Columbus, OH 43210-1067
United States
614-292-2194 (Phone)

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