US Trade Actions Against China: A Supply Chain Perspective
| DOI | 10.1177/0015732520920465 |
| Published date | 01 August 2020 |
| Date | 01 August 2020 |
| Subject Matter | Articles |
US Trade Actions
Foreign Trade Review
55(3) 337–371, 2020
Against China: A Supply
© 2020 Indian Institute of
Foreign Trade
Chain Perspective
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DOI: 10.1177/0015732520920465
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Terrie Walmsley1 and Peter Minor1
Abstract
In 2018, the United States (US) Administration initiated several trade actions, includ-
ing tariffs on China for unfair trade practices outlined by the US Trade Representative
(USTR). In response, China filed requests for consultations with the World Trade
Organization (WTO) and has implemented or threatened to implement increased
tariffs on US products. In this article, the implications of current and potential US
trade actions and responses by China on the US and global economy are estimated.
We employ a dynamic supply chain model based on the widely used Global Trade
Analysis Project (GTAP) Data Base and model. Our analysis finds that US gross
domestic product (GDP) would be reduced by a projected –0.86 per cent in 2030
(or US$227.8 billion in 2017 dollars), as the role of the USA in global supply chains
declines significantly. China’s GDP would also decline considerably by 2.84 per cent
as a result of the actions imposed against it, while the rest of the world gain, as they
fill the gaps left by US and Chinese producers.
JEL: F16, C68
Keywords
U.S. trade actions, China, supply chains, tariffs, global trade model
Introduction
Since 2017, the administration has introduced three major trade actions on alu-
minium and steel, China and motor vehicles. The current and proposed US China
Section 301 actions are the largest trade action the administration has undertaken
with the potential to significantly impact broad segments of the US economy.
On 22 March 2018, US Trade Representative (USTR) released a report identi-
fying China’s unfair trade practices that restrict US commerce.1 On 15 June 2018,
1 ImpactECON LLC, Boulder, CO, USA.
Corresponding author:
Terrie Walmsley, ImpactECON LLC, 1942 Broadway, Suite 314, Boulder CO, 80302, USA.
E-mail: TWalmsley@impactecon.com
338
Foreign Trade Review 55(3)
USTR announced tariffs of 25 per cent on approximately US$50 billion in US
imports from China in response to alleged unfair trade practices related to US
technology and intellectual property.2 On 10 July 2018, additional duties were
announced, USTR announced a process for applying additional duties of 10 per
cent on a list of US$200 billion in imports from China.3 The US government then
announced its intention to raise the tariff rate from the announced rate of 10 per
cent to 25 per cent on the proposed list of US$200 billion in imports from China.4
The Government of China initially applied retaliatory tariffs on approximately
US$50 billion in US imports; products have ranged from soybeans, to motor vehi-
cles, parts and cranes in response to the USA’s initial lists.5 With the application
of US tariffs on the additional US$200 billion in Chinese imports with an initial
tariff level of 10 per cent, the Chinese government announced the imposition of
tariffs on an additional US$60 billion in imports from the USA and restated its
intention to increase their response if the USA further raises duties or expands the
product lists.6 On 7 September 2018, President Trump announced that his admin-
istration had drawn up a list of additional tariffs on US imports from China of
US$267 billion, which would be applied if the Chinese government did not cease
its practices as outlined in the Section 301 report (USTR, 2018, March) or if
it continued to retaliate against US trade actions.7 Since President Trump’s
September announcement and the application of tariffs on US$200 billion in US
imports from China, the US government has indicated it is willing to keep increas-
ing tariffs until China changes its approach to trade with the USA. In early 2019,
trade talks between the USA and China began.
Few sectors in the US economy work independently from one another. US
industry, agriculture and services are integrated into global supply chains, rela-
tionships developed over 50 years, which will be threatened with on-going disrup-
tions as tariff costs and uncertainty rise. Any reduction in the integration of US
producers from global supply chains threatens the competitiveness of US goods
and services since they become less competitive at home and in global markets.
Finally, retaliatory tariffs reduce demand for US exports, be they part of global
supply chains or wholly produced in the USA, as is the case with soybeans, meat
and dairy products. It is therefore important to use a robust quantitative approach
when analysing trade policy, to determine if the costs to US consumers and
upstream industries exceed the benefits to selected industries or sectors when
comparison is made to national production and real income.
To measure the potential economy-wide impacts of current US trade actions
against China’s unfair trade practices, a global model of trade and production is
required to capture the linkages between sectors and countries to estimate ‘net’
impacts of these new tariffs.8 This article uses a computable general equilibrium
(CGE) model of global production, supply chains, trade and macroeconomic
accounts to estimate the net impacts of US tariffs and reciprocal trade actions on
the US and global economy. The model has been extended to include supply chain
linkages to capture the impact of increasing costs of intermediate goods, such as
steel and aluminium, on using industries, such as automotive production and
machine parts, among others.
Walmsley and Minor 339
The following section outlines in greater detail the products, tariffs and trade
impacted by the US trade actions against China. Section 3 describes the dynamic
supply chain model used in the analysis, focusing on the inclusion of the supply
chain data; and in Section 4, the impact of US trade actions on real GDP, produc-
tion and trade are shown. Finally, conclusions are made in Section 5.
Section 301 Actions: China’s Unfair Trade Practices
Section 301 of the Trade Act of 1974 was designed to address a range of unfair
trade acts, policies and practices. On 22 March 2018, USTR released a report
listing policies and practices undertaken by China related to technology transfer,
intellectual property and innovation that hinder US trade and investment (USTR,
2018, March). The president instructed that an appropriate response to China’s
acts, policies and practices would be to raise tariffs. On 15 June 2018, USTR
released the first two (impacting approximately US$50 billion in imports) of three
lists detailing tariffs on US imports from China and announced initial 25 per cent
duties. The first list was made effective on 6 July 2018 and the second list, after a
review process and minor modifications, was made effective on 23 August 2018.
The third list, announced on 10 July 2018, included additional tariffs on US$200
billion in trade. After the initial publication of the US$200 billion list, President
Trump announced his intention to increase duties, initially set to 10 per cent, to 25
per cent. USTR subsequently announced in September 2018 that the 10 July 2018
list, with modifications would be put into effect on 24 September 2018 with initial
duties of 10 per cent rising to 25 per cent on 1 January 2019.9
China announced reciprocal tariff actions in response to each of USTR’s three
lists. On 15 June 2018, the Chinese Ministry of Finance issued product lists for
the application of duties on China’s imports from the USA (effective on the same
dates as the US lists).10 In response to the US President’s announcement to increase
duties on its ‘List-3’ from 10 per cent to 25 per cent, the Chinese Ministry of
Finance released a list of products for which tariffs would be increased in a range
of five to 25 per cent.11
On 7 September 2018, President Trump announced that he had ordered the
creation of a list of US$267 billion in US imports from China for additional duties
to be applied if China did not change its approach to trade.12 The administration
has not released the list, but has threatened, as recently as 5 May 2019,13 addi-
tional tariffs if China does not cease its trade practices as outlined in the China
Section 301 report (USTR, 2018, March).
Table 1 (column II) summarizes the three official China Section 301 ‘lists’,
which include specific HS codes and cover US$233.9 billion in 2017 US imports
from China. Column III includes US imports from China not included in the three
official US product lists and totals US$263.9 billion, slightly less than the US
President’s statement of additional duties on US$267 billion in US imports from
China. Column III, US imports from China, are assumed to make up the remain-
ing trade, which is projected to have Section 301 tariffs applied. Since all trade on
the official lists have been set (or are set to increase) to 25 per cent, it is assumed
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Foreign Trade Review 55(3)
for the purposes of this analysis that the administration will continue to apply
duties up to this amount on US imports from China. If the US places 25 per cent
duties on these imports from China, the US government will collect additional
calculated tariff revenue of US$124.5 billion to be paid by US businesses and
consumers.
Table 2 summarizes China’s Section 301 responses. Table 2...
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