Tariffs & Trade War Timeline: An Overview
In this first of a two-part series of articles on tariffs and the trade war, we look at a definition of tariffs, events in the trade war timeline and an overview of where things stand now.
Unless you’ve been living under a rock, you’re aware of the trade war that has been brewing between the U.S. and China over the past year. The first wave of tariffs imposed by President Trump on goods imported from China took effect last July. The President called this 25% tariff on $34 billion worth of Chinese products punishment for intellectual property theft he accused the Chinese of committing.
China soon retaliated by slapping tariffs on $50 billion worth of goods they import from the U.S., including agricultural products, automobiles and seafood. More recently, on May 10 President Trump announced that tariffs will be increased from 10% to 25% on $200 billion worth of Chinese imports, while threatening 25% tariffs on another $325 billion worth of Chinese goods. China again wasted no time retaliating with an announcement of tariffs ranging from 5% to 25% on $60 billion worth of American imports.
Tallying Up the Tariffs
With the trade war timeline beginning last summer, the total tariff tally reads as follows:
U.S. tariffs have been assessed on $250 billion worth of Chinese goods imported here.
Chinese tariffs have been assessed on $110 billion worth of American goods exported to there.
The tariffs and trade war with China elicit strong reactions from many people who don’t normally have opinions about global trade policy. Often, these reactions fall along predictable political lines: Supporters of the President believe that he is standing up for American interests against overseas “bullies” who have taken advantage of our liberal trade policies in the past, even if it causes short-term economic pain. Critics, meanwhile, believe he is doing serious damage to many U.S. industries, including agriculture, lumber and steel.
Rather than argue the pros and cons of tariffs or take a political position, it’s best to take an objective look at trade wars and tariffs in general to better understand what’s currently going on.
What Exactly Is a Tariff?
A tariff — also sometimes called a duty or levy — is simply a tax on goods and materials that are imported into a country. Tariffs make goods and materials more expensive, though who exactly pays for them is a subject of debate. In the U.S., tariffs are collected from exporters by Customs and Border Patrol agents when goods arrive at ports of entry, with the funds being transferred to the U.S. Treasury. Tariffs are only assessed on goods that exchange hands, not on services provided.
With the exception of the Chinese tariffs noted here, worldwide tariffs are low, averaging just 2.9%. The average tariff on goods imported into the U.S. from other nations is 2.4%, while the average tariff on goods imported into Canada is 3.1%. In Japan, the average tariff on imported goods is 2.0% while it’s 3.0% on goods imported into the EU.
The main exceptions to low tariffs tend to be on agricultural products. For example, Canada assess a 270% tariff on dairy products while the U.S. assess a 168% tariff on some peanuts and a 350% tariff on some tobacco products.
Tariffs serve a two-fold purpose: They raise revenue for governments and help protect domestic industries from foreign competitors. Since the federal income tax was established in the U.S. in 1913, though, tariffs have accounted for a much smaller percentage of federal tax revenue — just 1%, compared to 90% before federal income taxes were collected. In the most recent fiscal year, the U.S. government collected about $35 billion in tariffs.
During the presidential campaign, President Trump stressed the importance of leveling the global trade playing field and reducing the U.S. trade deficit, especially with China. This trade deficit was only $100 billion in 2000 but has spiked sharply since then. Last year, our trade deficit with China increased by more than $43 billion to nearly $420 billion.
What Comes Next?
So where are the tariffs and the trade war timeline headed? Nobody knows for sure, but it’s looking like we could be headed for a long standoff between the two countries. The latest round of trade talks between Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer and their Chinese counterparts concluded in early May without any resolution, and no further talks have been scheduled so far.
As David Dollar, a senior fellow at the Brookings Institute and former World Bank and Treasury official, put it in a recent AP article1, “It’s really hard to identify whether this is the beginning of a prolonged conflict or just negotiating tactics.”
One somewhat ominous sign in the trade war timeline is that Beijing has recently begun airing Korean War moves to stir up anti-American and patriotic feelings among the Chinese population to try to engender support for a long trade standoff. And the Chinese president recently stated that people in China should be prepared for a “Long March,” referring to the escape of Mao Zedong’s Communists from the nationalist government leading China in the mid-1930s.
The U.S. and China have been sparring with each other over trade policies for the past year. During this time, the U.S. has assessed tariffs on imported Chinese goods worth $250 billion while China has assessed tariffs on $110 billion worth of American goods. Nobody knows for certain where this trade war is headed, but with the latest trade talks ending without any resolution, we could be headed for a long standoff. In part two of this series, we look at how the trade war impact on business performance can be addressed by acting in eight priority solution areas.
1 US, China appear to brace for long haul in trade dispute; Paul Wiseman & Joe McDonald; APNews.com; May 22, 2019
Arthur F. Rothberg, Managing Director, CFO Edge, LLC
Articles in this two-part series:
Part 1 – Tariffs & Trade War Timeline & Overview – This article.
Part 2 – A Roadmap of Eight Areas to Address the Trade War Impact
Economic Uncertainty: Four Initiatives to Start Now
BAT & Tax Reform: How You Can Prepare