What was the impact of US tariffs on China under President Trump?

Tax | | MIC Customs Solutions |

A new report from the USITC has revealed the impact on US imports of Section 232 and Section 301 tariffs imposed by the Trump administration.

The last few years have marked an increase in trade disputes between the US and China, with the administration of president Donald Trump making new tariffs a key part of its international trade policy - a position that has been continued under president Joe Biden's government.

Among the most consequential tariffs introduced during president Trump's time in the White House are those imposed on metal imports under Section 232 of the Trade Expansion Act of 1962, which were enacted in March 2018. These placed duties of 25 percent on steel imports and ten percent on aluminum imports from most countries, with the Trump administration arguing that these were justified on national security grounds.

Other duties were imposed under Section 301 of the Trade Act of 1974. These measures focused directly on imports coming from China beginning in July 2018 and covered thousands of products, including computer equipment, semiconductors, automotive parts and consumer goods such as apparel and footwear.

New report highlights cost to importers

According to a new report from the US International Trade Commission (USITC), an independent federal agency focused on trade, the impact of these tariffs was borne almost entirely by US importers as the cost of shipping goods to the US rose in alignment with the duties.

It found that overall, import prices for affected goods rose at the same rate as tariffs. The USITC estimated that prices increased by about one percent for each one percent increase in the tariffs, though this is not reflected in prices paid by consumers.

For example, the report found that the cost of steel products in the US rose by 2.4 percent following the introduction of the 25 percent tariffs - indicating that importers were forced to absorb the majority of these extra duties.

Similarly, the price of aluminum products in the United States increased by 1.6 percent in the wake of the Section 232 tariffs, while across all sectors affected by the Section 301 tariffs on Chinese imports, the price of US products rose by 0.2 percent. However, import prices for Section 301 items varied widely by sector, with some import prices, such as those for computer equipment, semiconductors, furniture and audio and video equipment - increased as much as 25 percent in 2021.

The impact on US imports

The ITC's report also found that these tariffs had a direct impact on import levels and, consequently, domestic US production of affected goods.

For example, steel imports to the US decreased by 24 percent compared with pre-tariff levels, while shipments of aluminum into the country were down by 31 percent. At the same time, US production of items using these metals increased by 1.9 percent and 3.6 percent respectively.

As a result, US production of steel was $1.3 billion higher in 2021 due to Section 232 tariffs, while the value of US-made aluminum goods rose by $0.9 billion over the same period.

For those sectors impacted by Section 301 tariffs, imports from China fell by 13 percent. However, the value of US production only rose by 0.4 percent, which suggests importers have switched to other overseas sources for their goods rather than bringing manufacturing back to the US.

Tariffs set to stay for the foreseeable future

US import tariffs introduced under president Trump also show no signs of being removed any time soon. In most cases, the Biden administration has opted to maintain these duties, and especially those on China - sometimes in defiance of World Trade Organization rulings.

For instance, while Washington has come to deals with some trade partners, such as the EU, to suspend Section 232 tariffs, this does not apply to Chinese imports. 

Meanwhile, a three-judge panel from the US Court of International Trade has recently rejected a lawsuit brought by importers that claimed the Section 301 duties were wrongfully imposed.

Commenting on the report, John Murphy, senior vice-president for international policy at the US Chamber of Commerce, told Bloomberg that while it is not surprising that tariffs act as a tax on importers and US consumers, it is disappointing that there seems little appetite in Washington to change.

He said: "What’s most frustrating is that the administration has provided almost no opening for tariff relief - even in instances where tariffs are clearly forcing US manufacturing offshore. It’s long past time to revisit these policies." 

Therefore, it seems that importers of Chinese goods to the US are likely to have to continue bearing the additional costs of tariffs for the foreseeable future - and with political relations between the US and Beijing remaining tense, the prospects for any change appear poor.