The Biden administration is on a campaign to fundamentally alter the supply chains that feed America’s vast appetite for foreign-made goods. This effort is driven in part by the public’s demand for protection against the sorts of shortages that made everything from butter to SUVs scarce during the Covid-19 pandemic. Real enthusiasm for reordering supply chains, however, is stoked by perceived military and economic threats to the U.S. from a more assertive China.On her first visit to India last November, Treasury Secretary Yellen called for “like-minded countries” to work together to reduce the world’s dependence on “risky countries,” taking clear aim at China. Such statements play well on Capitol Hill, where members of Congress outcompete each other to show who is most disgusted by China. But they pose problems for many of America’s trade partners who do not share America’s desires to decouple.
The Biden administration inherited Trumpera policies intended to force China to clean up its predatory treatment of American intellectual property — patents, trade secrets and the like. The tariffs, which remain on two thirds of U.S. imports from China, were justified by the Trump administration not only by claims that American companies were forced to share technology as a condition of doing business there, but also as a means of reducing U.S. dependence on China for natural resources and some industrial products, and as payback for past unfair trade practices.America’s list of China’s economic threats is long, but concern that it will dominate future “chokepoints” — supply nodes that can be used to restrict access to critical materials — drives current policy. And recent Chinese actions have only reinforced fears of economic coercion. Over the past few years, China has used its economic leverage to retaliate against perceived slights from more than a dozen countries, slapping on tariffs and negating long-standing trade relations. Last October, the Biden administration deployed chokepoints of its own to forestall Chinese hightech development, banning exports of advanced semiconductors and the equipment needed to make them.
Although it features prominently in the press, America’s “tech war” with China is only part of the wider effort to reshape U.S.-Sino trade relations. The White House is determined to reduce future dependence on China through “reshoring” and “friend-shoring” of the activities that supply American markets. The goal of moving supply chains away from China now guides U.S. trade and investment policies, its economic relationships with allies, and its refusal to restore the World Trade Organization’s authority to act as an effective arbiter of trade disputes.
As the world’s most innovative economy and its largest importer — American merchandise imports exceeded $3 trillion in 2022 — the United States has many levers to move global supply chains. A review of these tools shows, however, that while some can be used effectively at least in the near term, none comes without substantial economic costs. There are also profound consequences of this campaign for U.S. global leadership.
America’s efforts to restructure global supply chains reflect a fundamental rethinking of how the global trading system should work. No longer willing to abide by WTO treaty norms, especially non-discrimination against other members, the U.S. is leading the formation of exclusive trade and investment networks. Other countries also seek to reduce dependence on China and are eager to capture market share it loses. But they still resist U.S. efforts to force them to decouple from China.
The Biden administration has left untouched the Trump-era tariffs levied in 2018 and 2019. This failure to reform Trump’s tariff policies, which represented an about-face from decades of U.S. commitment to rules-based open global trade, surprised many who followed the Biden campaign’s cogent criticism of the former president’s approach. However, since rearranging supply chains and making them less vulnerable to geopolitical tides is a priority for the Biden White House, retaining the Section 301 tariffs gives the administration broad discretion in responding to perceived injuries and provides a ready-made tool for altering U.S. trade patterns. Tariffs on China, which still average 19 percent, have helped to reduce its share of U.S. goods imports from 22 percent at the start of the trade war to only 17 percent by the end of 2022.This reduction in China’s share of the U.S. market has caused considerable economic harm to U.S. interests — costs that now seem to have been forgotten in the rush to remake U.S.-China economic relations. To date, U.S. Customs has collected $167 billion in duties on imports from China subject to Section 301 tariffs, which amounts to a hefty tax on U.S. businesses and consumers, as shown by several detailed studies of U.S. import prices. This sum, it’s worth noting, dwarfs revenue collected under Trump-era scattershot trade actions that also hit targets ranging from Canada to Turkey to the EU as well as China. And, incredibly, Americans continue to pay these import taxes while 2022 U.S. imports from China will exceed the value purchased in 2018, when the trade war began.
Because the largest share of U.S. imports from China are “intermediate goods” — goods, like engine parts, used to make other goods — these tariffs make U.S. businesses that rely on inputs from China less competitive against their foreign rivals at home and abroad. An analysis by Kyle Handley (Michigan), Fariha Kamal (U.S. Census) and Ryan Monarch (Federal Reserve), using detailed information on the activities of American manufacturers, found that Trump-era tariffs lowered export growth for those exposed to them, with an effect equivalent to a 2 percent to 4 percent tariff levied on their foreign sales. And there’s no reason to believe these tariffs are currently less damaging.
While hurting U.S. exports, tariffs do not often result in “reshoring” — that is, returning production (and jobs) to the United States. A recent study by the Peterson Institute for International Economics found that trade subject to the Trump tariffs was diverted away from China toward Mexico and other parts of East Asia, not to Detroit or Seattle or Dallas.
Mr. Biden has made the notion of “democracies versus autocracies” an organizing principle of his foreign policy. Unfortunately, in a world with low barriers to trade, blocking an autocracy from participation in one’s supply chains does not imply that democratically governed economies will take its place. Indeed, one of the ironies of the U.S.-China trade war is the bonus it has provided to Vietnam, an economy guided by the country’s communist party. Vietnam’s share of exports to the U.S. increased markedly after the levy of tariffs on Chinese goods including footwear and apparel. Adding to the irony, the shift was less than what it appears: these Vietnamese- labeled goods undoubtedly contain Chinese content, and some are made in Chinese- owned factories....
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That was one of the points made in the earlier posts, that as American imports from Vietnam rose, so to did Vietnam's imports from China.
Very much like Europe buying Russian oil but routing it through India and paying a middleman's markup to do so..
