Building Trade Walls

​President Trump’s advisers and allies are pushing an ambitious idea: Remake American trade.
They are considering sweeping aside decades of policy and rethinking how the United States looks at trade with every country. Essentially, after years of criticizing China and much of Europe for the way they handle imports and exports, these officials want to copy them.
This approach could result in higher barriers to imports that would end America’s decades-long status as the world’s most open large economy. This could lead to slightly higher prices in the United States for everything from Chilean grapes to iPhones to gasoline. But it could also provide a boost to companies and workers who make things in the United States and sell them abroad.

Will it happen? Mr. Trump has hinted at the issue, saying to Congress last week that “other countries make us pay very high tariffs and taxes,” but “we charge them almost nothing.” The discussion, if translated into action, could affect national economies and regular households alike — and create big problems for countries like China that depend heavily on exports to the United States.

Putting Up Barriers
First, it helps to understand how the United States and other countries currently treat trade.
The most visible layer is tariffs, or taxes on imports. The World Trade Organization, the global trade adjudicator, has allowed developing countries to impose far higher tariffs than industrialized countries, while they build up industries at home. China has been counted as a developing country.
But many countries have additional taxes. For example, China and other countries, but not the United States, also charge a steep value-added tax, which is a kind of national sales tax on imports and home-produced goods alike. Exports are exempt from value-added taxes.
Once value-added taxes and sales taxes are included in an international comparison, America’s taxes on imports are much lower than those of almost every other country.

Rethinking Trade
Mr. Trump’s advisers and some lawmakers don’t like this arrangement.
For starters, they question why China’s average tariffs are about three times as high as those in the United States — and its tariffs on manufactured goods, which involve a lot of jobs to produce them, are far higher still. Those levels are allowed because when China joined the World Trade Organization in 2001, it was clearly a developing country. Lower American trade barriers have helped China increase exports to the United States, while importing fairly little.
Today, China’s designation as a developing country is more debatable. China is the world’s second-largest economy and the biggest producer of steel and cars.
Still, China trails most developed nations by some measures, and Chinese officials argue that it is still developing and does not yet qualify as industrialized.
China’s economy is still roughly two-thirds the size of the American economy, even though China has four times as many people. Average incomes in China are still one-fifth to one-quarter of levels in the United States, and much of China’s interior is still underdeveloped.
“We still hold the developing countries’ standpoint,” said Li Gang, the deputy dean of the Commerce Ministry’s research unit, the Chinese Academy of International Trade and Economic Cooperation.
When China joined the W.T.O. in 2001, the expectation was that its tariffs would later be adjusted lower during global trade talks, known as the Doha Round. But those talks fell apart for a variety of reasons.

How Tariffs Hit Industries
While China’s average tariffs are higher, they vary widely by industry, and that has contributed to big industrial shifts.
Consider cars. China’s tariff on imported cars is 25 percent of the wholesale price, which is one reason General Motors, Ford and Volkswagen set up huge factories in China. By contrast, tariffs in the United States are just 2.5 percent for imported cars, minivans and sport utility vehicles. So automakers make in China almost all the cars that they sell there, while many cars in the United States are imported.
To be sure, automakers have many reasons to build factories in China, including proximity to low-cost suppliers as well as to customers in a big new market.

Trade Redo
Some of Mr. Trump’s advisers and Republicans in the House of Representatives want to replace America’s current taxes on corporate profits with a system that raises the costs of imports while helping exports.
Companies currently deduct practically all of their costs, including imports, from their sales revenue, and then pay taxes on the profits that are left. The new idea, sometimes called a border-adjusted tax, essentially involves ending the deductibility of imports so that they would be taxed. At the same time, profits on exports would no longer be taxed, and the overall tax rate would be cut. Big beneficiaries would be domestic factory owners and workers and big exporters like Boeing. But other countries might retaliate, and some Senate Republicans worry it could violate the rules of the W.T.O.
A border-adjusted tax would “mean a trade war not only between China and the U.S. but across the whole world,” said Wei Jianguo, a former Chinese vice minister of commerce. “China is firmly against it.”
The idea nonetheless has support among House Republicans, in addition to some of Mr. Trump’s supporters, although the president himself has called it “too complicated.” It has also divided businesses, with big importers opposed.
 Date:2017-03-21 09:19:14


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