Sep 23 2009

Tit, tat, tariff… China and America’s latest shoving match is underway

America, a champion of free trade between the world’s nations… right?

Actually, the United States places tariffs (taxes on import) on virtully every item it trades for with the rest of the world. Below is just one tiny section of the 75 page table of contents (!!) of the “Harmonized Tariff Schedule of the United States”.

JOGGING SUITS knitted or crocheted . . . . . . . . .. . . . . 6112.11-19
JOINERY of wood, for builders . . . . . . . . . . . . . . . . . . . . . . . . . 4418
JOINTS artificial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9021.11
JOJOBA OIL . . . . . . . .  . . . . . . . . . . . . . . . . . . 1515.90, 1516-1518
JOKE ARTICLES . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 9505.90
JONGKONG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . Ch. 44
JOURNALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . 49-3, 4902
JUDO UNIFORMS of cotton . . . .  . . . . . . . . . . . . 6203.22, 6204.22
JUICES fruit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20-US1-3
fruit and vegetable . . . . . . . . . . . . . . . . . . . . . . . . 20-5, 2009.11-90
meat, fish, or aquatic invertebrates . . . . . . . . . . . . . . . . . .1603.00
JUMPSUITS men’s or boys’ . . .  . . . . . . . . . . . . . . . . . . .  6211.32-33
women’s or girls’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6211.42-43
JUNIPER seeds of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . …0909.50

Yes, folks. Even “Joke Articles” made overseas are taxed before ending up in the hands of American consumers (by 70% as it turns out!). But tariffs are no joke. The podcast below offers an excellent evaluation of the effects of America’s tariffs on various stakeholders, including American consumers, producers, and workers and on foreign producers, consumers and workers.

[podcast]http://welkerswikinomics.com/blog/wp-content/uploads/Tariffs.mp3[/podcast]

After listening to the whole podcast, respond the the following questions in a comment.

Discussion Questions:

  1. How does a tariff on Chinese tires affect American tire manufacturers? Why are American firms that make tires actually opposed to the tariff on Chinese imports?
  2. Which group is the main proponent of higher tariffs on Chinese tires? Why does this group favor higher tariffs?
  3. How have the Chinese responded to the American tire tariff? Why are American chicken farmers upset about the tax on Chinese tires?
  4. Why do “97% of economists say tariffs are a bad idea?” The commentator says economists hate them because “they are so inefficient”. Discuss the economic reasoning behind this statement.
  5. Do you think it is likely that the 35% tariff on Chinese tires will save or create jobs for Americans? Why or why not? What are your conclusions regarding the economic wisdom of tariffs?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

10 responses so far

10 Responses to “Tit, tat, tariff… China and America’s latest shoving match is underway”

  1. Jonathan Ron 24 Sep 2009 at 3:47 am

    2. The main proponents of higher tariffs on Chinese tires are American tire workers and the unions that represent them. Indeed, they are the hardest hit by free trade – as Chinese firms, with their lower production costs, outcompete domestic tire manufacturers, these tire workers will ultimately face layoffs. Often, these are blue-collar workers who have been in the tire industry for most of their working career – if laid off, these workers certainly are hampered by immobility in terms of changing industry/sector.

    4. Under free trade (assuming foreign producers can produce at lower prices than domestic producers), the total welfare in society is maximised; the equilibrium price is lowered and the quantity demanded increased. The tariffs will cause both productive and allocative inefficiencies. By decreasing the supply of tires in the economy and thus also increasing the market price, American producers are not forced to produce at the lowest possible cost. Further, the tariff limits foreign competition in the tire market, which is a disincentive for American tire manufacturers to strive for greater efficiency. Allocative efficiency also results due to the tariff: the increase in price and decrease in quantity demanded mean that, at the new equilibrium, the true cost to society of producing the good is actually less than the value society places on the good. The resulting dead weight loss, then, is caused by an under-allocation of resources to the production of tires (due to the tariff)

  2. Gabrielon 24 Sep 2009 at 11:47 pm

    1. Theoretically a tariff on Chinese tires would be beneficial to American tire producers since it would raise the price of imported Chinese tires, decreasing the quantity demanded for these imported tires and increasing the quantity demanded for the cheaper American tires.

    2. The main proponents of this tariff are American workers working in the tire industry. The fact that China produces these tires more efficiently means that they can sell it for a lower price but now that a 35% tariff has been implemented, these are 35% more expensive and therefore the quantity demanded of American tire makers will increase, allowing workers to keep their jobs. These workers are low skilled workers, so if they were to be unemployed, they certainly couldn't go into many other jobs.

    3. The Chinese government is obviously upset about this tariff so they have said they will respond by implementing a retaliation tariff on American imported chicken feet. Chicken farmers are very upset because with the decrease in Chinese imports of chicken feet, there will be a huge loss of revenue on their part and could potentially become unemployed.

    4. Tariffs are considered inefficient because they are a form of protectionism and they lead to a decrease of surplus. Even though the domestic producer surplus increases, domestic consumer surplus decreases more and therefore a dead weight loss results. This is a sign of inefficiency. Another inefficiency is that with higher Chinese tire prices, there will be a loss of competition in the American tire market, this will cause American tire producers to be inefficient because they don't necessarily have to produce at the lowest cost. This will also lead to a decrease in variation. The US government is taxing Chinese tires is so in a way it is subsidizing American tire makers. This means that they are subsidizing a more inefficient firm.

    5. This tariff will have harmful effects on probably all parties involved. Even though it seems that domestic tire firms in the US will benefit, in truth this will not be so because the US will end up trading with another country other than China in order to benefit from trade. This has a negative effect on consumers because it will lead to higher prices, a loss of consumer surplus and a loss of variation. This is obviously damaging to China since its exports of tires to the US will decrease because of the higher prices Americans are forces to pay. This has a negative effect for workers in China since Chinese tire industries now face a loss of revenue and may be forced to lay-off workers or even shut down. It has a negative effect on other US industries because China could respond with a tariff on one of their products, leading to unemployment, high prices and inefficiency. In conclusion this tariff would be negative to all parties since it would just start a tariff war. Also, if Obama seems to be a supporter of free trade, why does he respond by placing protectionist barriers in trade with China?

  3. Theresaon 25 Sep 2009 at 12:27 am

    1.How does a tariff on Chinese tires affect American tire manufacturers? Why are American firms that make tires actually opposed to the tariff on Chinese imports?

    The demand for chinese tires goes down, since their price is higher. It is now including the tariffs, making it less competative. American tire manufacturers who do not have to pay the tariff therefore become more competative.

    2.Which group is the main proponent of higher tariffs on Chinese tires? Why does this group favor higher tariffs?

    American workers are the main proponents, since they cannot move around and they are inflexible. Unlike american firms who are globalized and flexible in what they produce. With the higher tarriffs this group benefits since more people will be employed as there will be more demand for american tires, who have become more competative.

    3.How have the Chinese responded to the American tire tariff? Why are American chicken farmers upset about the tax on Chinese tires?

    As "revenge" the Chinese put tarrifs on american chicken imports. Therefore american chicken farmers since much of their demand for it (who are the only real consumers) decreases largly! The revenue that came from the Chinese therefore goes down and firms fall out of profit.

    4.Why do “97% of economists say tariffs are a bad idea?” The commentator says economists hate them because “they are so inefficient”. Discuss the economic reasoning behind this statement.

    Tariffs are so inefficient, since it is a "hit, hit back" situation. If the american companies put a tarriff on chinese tires then they will be mad about the inefficiency in their country and set tarrifs on American imports. This again hurts american firms.

    At the end not only consumers who have to pay higher prices are hurt, but also producers who get stuck with not being able to export efficiently. Much efficiency is therefore lost which creates a dead weight loss to the societies.

    And also, many american companies might have their companies in china and are now hurt just like the chinese from this tax.

    5.Do you think it is likely that the 35% tariff on Chinese tires will save or create jobs for Americans? Why or why not? What are your conclusions regarding the economic wisdom of tariffs?

    In short term it may create jobs. But like they said in the radioplay this will be unlikely since other countries also produce cheap tires and therefore tires will just be imported from there. Consumers are hurt since they have to spend more and therefore will not spend as much anymore. This hurts the economy since aggregate demand may go down as consumers disposible income goes down. Many american companies anyway produce in China and therefore have to pay the tax. No jobs will therefore be created as american companies are not earning more profit…

  4. Maren Rackebrandton 25 Sep 2009 at 1:35 am

    1. More tires would be bought from domestic manufacturers, because their price of tires is now cheaper than the Chinese tired due to the tariff. Thus the quantity demanded of domestic tires would increase. American tire producers are opposed to this tariff, because they might have factories in other countries and therefore when they want to sell them in the US might face restrictions as well.

    2. The workers. They fear that they will lose their jobs if Americans will in the future only buy the cheap Chinese tires. Therefore they want higher tariffs, because the quantity demanded of domestic tires would rise and their worklplace would be assured. Also when American tires are not demanded anymore they will lose their job and it will be hard for them to find a new job.

    3. China responded by imposing a tariff on car parts and chicken. American chicken farmers therefore oppose the tariff on tires because it means that their good gets a tariff and China is one of the biggest importers of chicken. But with the tariff the Chinese will not buy as much chicken anymore.

    4. Tariffs bring everybody in a "messy situation". When one puts a tariff on something from another country, that country reacts and imposes a tariff on something they import from that country. This just results in higher prices and unemployment. Domestic firms are not as efficient anymore, because there is less competition.

    5. The tariff might have saved the 5000 workers in the short run, but because the tariff is only on Chinese tires, cheap tires from other countries can be imported and sold at a lower price than the price of domestic tires. So in the long run those domestic workers might lose their job. Also due to the higher prices less Chinese tires are demanded, creating unemployment in China. And because China imposed a tariff on car parts and chicken, the quantity demanded vor those will go down in China, causing more unemployment in the US because workers have to be laid off. Everybody losed due to the tariff.

  5. Aleyaon 25 Sep 2009 at 2:25 am

    1. Although the Chinese tire tariff was supposed to help American firms and workers, most tire producing firms actually oppose to this tariff. The main reason behind this is that most of these companies do not actually produce their tires in the United States. Most of these firms have their factories in China and would now be forced to charge higher prices in the US due to the increased tire tariff.

    2. The main supporter of the tire tariff are the workers working in tire producing companies in the US. These workers do not oppose to this new tariff because they fear that they might loose their jobs if Americans start buying more Chinese produced tires that are cheaper. More expensive chinese tires would cause the demand for domenstically produced tires to increase, which would ensure the workers a safe job (for some time).

    3. The Chinese have responded to this hostile tariff by placing their own tariff on American proudced poultry products and car parts. Now this tariff has not only affected the tire industry but has also upset poultry producers, because they are suddenly loosing valuable customers in China. Since the price for chickens have risen in China poultry companies in the US are forced to find new customers that will by their products.

    4. Most economists claim that tariffs are bad because they cause more harm to most industries than good. Tariffs force firms to work inefficiently and cause much damage to industries that are not even directly affected by the tariff. A tariff forces firms to produce goods that they are less productive at instead of importing them from a country that is.

    5. I do not think that placing a tariff on chinese produced tires was a very wise thing to have done. In the short run it might have saved 5000 workers their job, but in the long run other industries like the poultry and car part industries are affected negatively. Their products will be less demanded in China, and will these industries will therefore be forced to lay of workers which might cause more unemployment than those 5000 tire producers. I also agree with Maren in saying that other countries will start producing cheap tires and that sooner or later the US might be faced with the same problem again.

  6. Nicholas Burnhamon 25 Sep 2009 at 3:43 am

    Obama's attmept at a retaliatory tariff seems to have not gone well. With the intention of protecting the U.S. tire industry, the tariff on Chinese tires coming into America has in fact met resistance from the American manufacturers as well. If the tires are (as America have claimed) being sold at prices below the cost of their production, China will have broken an agreement they made at the WTO. Namely they agreed to never partake in "dumping", or the selling of their goods at prices lower than the cost of production in order to bankrupt competing firms. This attack on free trade has so far gone on without evidence for America's claim. China responded by raising the tax on chicken and auto parts from America. This, in turn, means that any American companies producing on Chinese soil will have to suffer the tariffs as well, with the auto sector suffering the most.

  7. Jabbo Gehirnon 25 Sep 2009 at 4:41 am

    1. Some Tire producers oppose the tariff because they have factories outside the USA, meaning that they will feel the tariff too, when importing their tires.

    2. The biggest proponent group is the labor force of the factories in the USA. Without tariffs on imported tires, domestic factories will have to cut production costs by lowering wages or laying off workers because consumers will buy imported tires rather than domesticly produced ones, because they are cheaper. Holmes would kill me if he saw the syntax of this paragraph.

    3. The chinese said they might put a tariff on chicken "paws." This would decrease chicken-paws-imports in China. America is one of the biggest chicken-paw exporteurs to China, so US Chicken farmers would be upset because the demand for their chicks would decrease.

    4. As the two moderators acted: You push me, I push you, you push me, I push you and so on…

    As everyone else already mentionend 6000 times: Tariffs will force the production of the tariffed good towards inefficient domestic producers.

    5. Tariff will save jobs?

    Short-run: yes

    long-run: no, because of the CHICKEN!!!

  8. Marc Lon 25 Sep 2009 at 8:43 am

    1. It is supposed to protect the American companies, because it increased the domestic price, domestically produced supply. Many American firms actually produce their tires in China, and therefore they are also affected by this tariff. The American firms are flexible, so if they have to downscale their tire business, they can move into other sectors.

    2. Workers and their unions are the main proponents, while the firms are flexible, the workers are immobile, and are scared of loosing their jobs. If a blue collar worker looses his job, it is very hard for him to move into another industry or sector to find work.

    3. The Chinese have responded by threatening to impose tariffs on American products such as poultry and auto parts. These other firms that export to China are upset, because they have become stakeholders in the beginning of a trade war, because of American protectionism.

  9. Alex Hanon 25 Sep 2009 at 9:28 am

    3) China is upset because they can export less which leads to a decrease in GDP employment and AD. So they retaliated by imposing a tariff on poultry and car parts, making it difficult for American firms to export. These American industries will lose lots of their profits…. A TARIFF WAR!

    5) Obama was probably save the dying domestic tire industry. But the thing is that it could just keep declining even after the tariff. Then all they're left with is a pissed-off China…. This is similar to the motor industry bailout. I suppose one could say it would be wiser to let the tire industry be, while we use resources to aid other more healthy industries. But then again, the government would not be popular for the tire manufacturers. It's hard to discuss but one thing I personally believe is that 35% was a little over the top… Maybe he should have subtly implemented a series of different little protectionist methods: little subsidies, little increase in tariffs, slowly increase administrative barriers?

  10. fashionon 30 Jan 2016 at 4:33 pm

    fashion

    Tit, tat, tariff? China and America?s latest shoving match is underway | Economics in Plain English