Wednesday, September 8, 2010

Just Who Exactly Pays When We Tax Chinese Imports?

One of this blog's frequent complaints about American protectionism or mercantilism is that, because almost 60 percent of all US imports capital goods and equipment, attacking imports actually ends up hurting a lot of US businesses that rely on those goods to remain globally competitive.  Continuing this theme comes some new information from the US-China Business Council (using FedGov data) about Chinese imports into the United States during the first half of 2010.  And as you can see, the Chinese ain't just selling us cheap t-shirts:

Category                                                          World   China
Food, Feeds, and Beverages                               4.9%     1.4%
Industrial Supplies & Materials                            32.7        8.6
Capital Goods, Excl. Auto                                  23.1      36.6
Auto Vehicles, Parts, and Engines                     11.9        2.9
Non-Food Consumer Goods, Excl. Auto              24.2      49.3
Imports, NES                                                     3.1        1.1

In short, so far in 2010 a little over 45% of all Chinese imports into the United States have been (i) industrial supplies and materials or (ii) non-automotive capital goods - i.e., inputs used by American companies.  So, when politicians like Sen. Chuck Schumer call for new tariffs on Chinese goods in order to "punish" China, it's critically important to remember that the pain will be felt by not only American families (through higher prices for food, clothing and other consumer goods), but also lots and lots of American businesses.  

And their many workers.

In fact, downstream US industries that consume these Chinese inputs typically employ a lot more Americans that the US raw material companies that would benefit from anti-China protectionism.  One of my favorite examples of this fact comes from an old Cato Institute study which showed that, at the time of publication, workers in steel-consuming industries outnumbered upstream steelworkers by a whopping 40-to-1.  (And that ratio has probably only gotten bigger as Big Steel has undergone a dramatic consolidation over the last decade.)  So when anyone talks about "saving American jobs" by taxing Chinese steel (or any other commodity), just remember that for every job those taxes might protect, more than 40 others are put at risk.  That's a bad deal in even the best of economic conditions, and it's highway robbery right now.

And just so we're totally clear here, the brutal costs of American tariffs on Chinese imports are not just limited to the prognostications of blathering free trade bloggers and their econo-geek stats.  They're very, very real, as made abundantly by this recent letter from an American printer who's trying to rally opposition to potential anti-dumping and countervailing duty tariffs on Chinese coated paper:
The U.S. International Trade Commission (ITC) will hold a hearing on Sept. 16 on the pending trade case involving coated free sheet (CFS) paper imports from China and Indonesia. If the ITC determines that U.S. paper manufacturers have been harmed by the practices of importers, it will apply additional duties to those imports.
I have been in the printing business for more than 25 years and I oppose duties in this case for many reasons. I believe the paper market has been competitive and domestic producers are not entitled to any special protections. Tariffs and duties are un-American and anti-competitive. As a printer, and as a customer, I want and need access to a wide range of products from many vendors to suit my customer’s needs and budget.
This is a critically important issue for the printing industry. It affects all of us because paper is our largest single input cost. If you agree additional tariffs in this case are unwarranted, your help is needed to verify facts about the competitive nature of the CFS paper market....


Robert Johannes
Co-owner and General Manager
Parris Printing
Nashville, Tenn.
Johannes' website has more stories like his own and puts a very real face on the Chinese import data I've provided above.  And the lesson from all of this is breathtakingly simple: when you attack Chinese imports, you hurt American workers.

Hopefully enough of our elected officials get the picture.


Anonymous said...

I obviously don't have the data but i'm pretty sure that would happen if duties are imposed is that users of the coated paper would be displaced by competitors that can access cheaper inputs, thus affecting american jobs in these industries, forcing the require the same protectionism; or creating the same "virtuous circle"

Does US AD/CVD laws requires a public interest analysis in these type of proceedings?

Scott Lincicome said...

The threat of such a cycle is certainly a possibility. And no, unlike other countries's laws, the US AD/CVD law unfortunately has no "public interest" exception.