Free Trade

Tariffs on Chinese Imports Have Accomplished Approximately Nothing

A new study shows that former President Donald Trump's tariffs did little to push American companies out of China.

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At the core of former President Donald Trump's aggressive trade policies was a relatively simple—perhaps overly simplified—promise: Tariffs on Chinese-made products would drive manufacturers out of China.

"Many tariffed companies will be leaving China for Vietnam and other such countries in Asia," Trump claimed in May 2019, about a year after his tariffs were first imposed. "China wants to make a deal so badly. Thousands of companies are leaving because of the Tariffs," he tweeted a few months later, suggesting that the outflow was already underway. "If you want certainty, bring your plants back to America," Robert Lighthizer, Trump's U.S. trade representative, lightly threatened in a New York Times op-ed in May 2020, as the trade war's second anniversary arrived.

But the tariffs failed to achieve that primary policy aim, according to a new paper published by researchers at the University of Kansas and the University of California, Irvine. Roughly 11 percent of multinational companies exited China in 2019, the first full year in which tariffs were in place—a significant increase from previous years. But the overall number of multinational firms operating in China actually increased during that same year, as foreign investment continued to flow into China even as the trade war ratcheted up costs.

In fact, the number of U.S.-based multinationals in China actually increased from 16,141 in 2017 to 16,536 in 2019. Non-U.S. companies were more likely to exit China during 2019 despite not being subjected to Trump's tariffs. 

"We estimate that less than 1 percent of the increase in U.S. firm exits during this period was due to U.S. tariffs. And U.S. firms were no more likely to divest than firms from Europe or Asia," researchers Jiakun Jack Zhang and Samantha Vortherms wrote in The Washington Post this week.

In their paper, the pair argue that political uncertainty created by the start of the trade war was a bigger factor than tariffs in driving some companies out of China. The companies that exited during 2019 were more likely to be smaller firms with a less established presence there.

"The vast majority of [multinational corporations], particularly the large ones, are waiting for the trade war to blow over and for business as usual to resume," Zhang and Vortherms conclude in the paper.

Indeed, that's what pretty much everyone outside of the White House said was happening at the time. In August 2019, more than a year after the trade war began, the U.S.-China Business Council, an industry group that represents companies doing business in both countries, surveyed its members and found that 87 percent planned to stay in China. "In contrast to some global narratives, our China-based data suggest that the majority of our members will not be packing up and leaving China anytime soon," Alan Beebe, president of the American Chamber of Commerce in China, another trade association, said in early 2020.

Trump is no longer running U.S. trade policy, but his failed tariffs on Chinese imports are still in force. Lighthizer's replacement in the Biden administration, U.S. Trade Representative Katherine Tai, has said the tariffs provide "leverage" over China.

But that perspective is no more grounded in reality than Trump's promises that his tariffs would cause companies to flee China. American consumers are bearing nearly 93 percent of the costs of the tariffs applied to Chinese goods, according to a recent report from Moody's Investors Service. How is this giving the White House leverage over China?

"Tariffs did not accelerate [foreign direct investment] outflows," Zhang and Vortherms wrote. "This suggests policy initiatives using tariffs to encourage the re-shoring of specific industries may have limited effects and carry unintended distributional consequences."

The Trump-era trade policies plainly failed to accomplish their goals. It's time for the Biden administration to admit as much.

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  1. The key goal of Trump’s tariffs on China was to get the Chinese Communist government to negotiate a trade deal, which occurred just before Biden won (er stole) last year’s election, which prompted the Chinese to ignore the deal they agreed to with Trump.

    This article is yet another pro Koch anti Trump screed by Reason.

    1. Trump lives rent-free in Boehm’s head. Not his favorite place to be, but free is free.

      1. I know….Trump has been out of office for eight months. But Boehm the Birdbrain remains obsessed with him.

        1. They are afraid he is coming back.

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    3. The Vietnam manufacturing sector has received a clear boost from the tariff-driven China exodus. One wonders if articles like this have been funded by the Chinese government.

  2. We are on the brink of national economic collapse, a rapidly escalating cold war with China (which can turn hot any minute), and the cucks at Reason cry about tariffs.

    I know what will solve these problems! More immigration! Haitian witch doctors are enriching the country! Diversity is our strength!

  3. So when a foreign nation blocks your country’s port and forces you to pay a fee for imported goods it’s an act of war, but when your own government does it it’s an act of benevolence.

    1. Sure… It is exactly like a protection racket.

      The mob didn’t burn down your store.

      The Union didn’t shut down production.

      Operation Push didn’t brand your company as racist.

      The feds didn’t fine your bank hundreds of millions…..

      Protection rackets are popular because they work.

      1. What kind of dressing should I put on that word salad?

        1. Tard-durr sauce would probably best suit you. Or given your self-confessed proclivity for coprophagia when you’re operating your Sqrly One sock, maybe just take a dump all over it.

    2. So when a foreign nation blocks your country’s port and forces you to pay a fee for imported goods it’s an act of war, but when your own government does it it’s an act of benevolence.

      It can be. Whether an action is legitimate indeed depends on who is doing it, for what purpose, and in what context.

  4. Assumes facts not in evidence.

    The point of the tariffs could have been to raise costs of imported goods and bring production home…. But that would certainly take more than three years.

    It could also have been a stick to be wielded in obtaining new trade deals that traded tariff reductions for other desired concessions.

    Since Trump used this exact tactic in other areas, I am not sure why the assumption is that the metric should be “getting companies to leave China”.

    1. But there are facts in evidence. We have the direct testimony of Trump and his Trade Representative justifying these tariffs on the basis that they would shift manufacturing to Vietnam (not domestically), and claiming “already” that it was happening. It’s right there in the article.

  5. I opposed and criticized the tariffs with China all during Trump’s presidency. It’s hard not to see, however, that our relationship with China has changed since 2016–and it’s not just about what Trump did. They’re not so much of a trading partner anymore, and they’re more of a strategic and military threat.

    Milton Friedman was said to have thought his policy of trading with China was a failure for failing to bring about more civil rights internally, but I’m not so sure that game has played itself out yet. It does seem to be the case, however, that China changed its tune in terms of being a force for stability in the developing world–because of trade with the United States.

    Before the end of the Cold War, when various armed insurrections referred to themselves as “Maoist”, they weren’t just talking about their ideology. They were talking about their support. Once China joined the WTO and extracting all those natural resources in the developing world became important for China’s export driven economy, suddenly they became a force for stability in the developing world rather than a source of communist revolution and instability. Since 2016, however, China’s economy and its leadership has become less concerned with exporting goods. Domestic consumption is likely to become increasingly important going forward and exports less so.

    Emperor Xi is purposely destroying China’s own consumer technology sector; he’s purposely destroying China’s own domestic housing market, and he appears to be doing that and more to avoid being reliant on American capital, American investors, and American finance. If he’s willing to cut off his nose to spite his face for that reason, I’m not sure he isn’t willing to clamp down on the China’s export sector either. Exports to the U.S. also make China’s economy dependent on us.

    Xi’s whole renewed push for socialism seems to be about giving himself a free hand to do as he pleases without worrying about the negative consequences in the markets. We may live to regret not having more imports from China and the influence that gave us for reasons that have nothing to do with manufacturing jobs. The less exports we receive from China, the worse it is for American interests and American security.

    1. I don’t necessarily disagree with what you say, Ken, but doesn’t that mean that Tariffs are useless or even worse by encouraging decoupling from China?

      1. Yes, I am against tariffs for all sorts of reasons. I’m trying to explain to people who support them, over my objections, why they aren’t in the best interests of the United States–even if they did somehow bring some manufacturing jobs back to the U.S. It isn’t all about trade.

        If the economies of Iran and North Korea were as dependent on the U.S. for exports as China’s, from a security standpoint, we’d have little to fear from them. Emperor Xi is keeping Chinese tech firms from listing on the New York Stock Exchange because he fears the influence such markets create over Chinese interests.

        Apple and Disney are limited IN CHINA by forces beyond Emperor Xi’s control. The market forces of capitalism are insidious, and that’s a big part of why Xi is turning his back on capitalism and embracing socialism again. Yeah, we should be doing everything we can to increase the amount of quality cheap imports from China, and tariffs are the opposite of that.

        1. If China is really trying to wipe out the financial investment in his country from abroad, and focus everything back on Chinese investment, then this creates a significant problem for the United States.

          Previously, it was beneficial for China to buy our debt because the first recipient of our mad stacks of cash has generally been our financial institutions who then pump money into China as investment. These actions may actually be a signal that China thinks our investment is not worth the trouble. And if that is the case, why do they want our debt?

          While it may be that China is trying to shift the focus of their economy, it is not necessarily a sure thing that it is the ends in and of itself. They may be shifting their economy away from US investment specifically because they think we are uniquely vulnerable to them turning off the cheap debt servicing; That they are ready to make a run at the Dollar.

        2. So; You’re against U.S. fiat printing – but request all U.S. means to defeat foreign fiat printing from affecting our market?

          So; You’re for *free* trade; as-in subsidizing the shipping of foreign goods? On top of allowing those who work out of China to avoid funding the National Defense?

          Never-mind the power to tariffs was DIRECTLY encoded into the U.S. Constitution. If we’re going to pretend our National Government deals with National Defense WHY shouldn’t it be funded by those who deal internationally???

    2. China is a hostile, communist regime. Trade with China therefore is not trade that is governed by free market principles or comparative advantage. China is happy to burn trillions of dollars and work millions of their citizens in labor camps as part of trading if it gives them a military and political advantage. China’s ultimate objective isn’t wealth but world domination through force.

      You’re right: the correct response is not to impose tariffs on China, the correct response is to kick China out of the WTO and stop trading with China altogether.

      1. You mistake 1.4 billion people with Xi Jinping. Total isolation hasn’t made North Korea a freer and less dangerous enemy. Why would it work on China? Trade makes countries more reliant on the interests of each other and there is no doubt that trade has made China freer than it has made the US communist.

        1. Right- in fact Ken’s whole point is that China right now is working to decouple its economy from ours, by shoring up domestic demand and wiping out foreign investment. Why? Probably because they are envisioning a near future where economic entanglements will make other foreign policy adventures more difficult.

      2. “China is a hostile, communist regime. Trade with China therefore is not trade that is governed by free market principles or comparative advantage”

        Their comparative advantage on labor intensive tasks wasn’t a function of labor camps. It’s because they had a tremendous supply of idle labor. Regardless, China’s comparative advantage is what it is whether you or I like what the government does. American consumers can enjoy the benefits of that comparative advantage every time they shop at Amazon, and it increases their standard of living.

        I understand that there may be a moral dimension to that, but if average Americans don’t share your moral concerns, I think that’s their business. I’m not a progressive. I’m not about using the government to inflict my ethics on people who don’t care about what I want them to care about. American consumers should be free to increase their standard of living by buying inexpensive items manufactured in China regardless of whether I like it.

        Meanwhile, the things I wrote about how trade with China undermines Emperor Xi’s ability to act with impunity remains true regardless of whether China treats its own people poorly. In fact, if trade with China undermines the ability of a vicious dictator to act against us, then the more vicious the dictator, the more we need to trade with him.

        Maybe think of it from a different angle. If you’re objective is to combat recidivism among car thieves (convicted felons committing the same felonies after release), what would you think of a law that makes it a crime to hire a convicted car thief? If the objective is to make them stop stealing cars, it seems like gainful employment would be a great way to combat that. Likewise, if you want to restrain the behavior of a vicious dictator, subjecting him to market forces so that his economy suffers because of his misbehavior seems like a good idea.

        If Emperor Xi is trying to escape market constraints so that he can get a free hand to act against us, why are we helping him escape the market?

        1. correction —
          If Emperor Xi is trying to escape market constraints … by overstocking UN-backed china currency and selling falsely advertised products … so that he can get a *free* hand-out at the USA’S expense.

          Then he’s doing an awfully good job at it. And since the USA cannot enforce fiat manipulation legal standards nor faulty product specifications nor blatant fraud of the China market on USA buyers; the only thing it can do is either tariff to correct the ‘fiat’ deception, negotiate a treaty in hopes it will be honored, stop trading completely or go to war.

          There’s a reason the founders gave the federal government the ability to … Article 1-S8:5 … regulate the Value thereof, *** and of foreign Coin ***, and fix the Standard of Weights and Measures.

  6. If you want certaintly, don’t be changing the tariff landscape on a weekly basis. While I am opposed to tariffs in and of themselves, if you’re going to have tariffs you need time to make them “work”. It takes time for the supply chains to adjust. It takes time to move factories “back home” (especially when those factories now have to compete with Trump subsidized foreign factories built here (cough foxxconn cough).

    This stuff doesn’t happen overnight. It doesn’t happen in a week. Hell, stuff like a new factory doesn’t even happen in a year. So even if you believe in tariffs as something other than outright punishment for not paying the baksheesh, you have to give them time to take effect on your socially engineered landscape.

    But Trumpistas don’t care because the tariffs were only there as a punishment for companies that weren’t fully on board the Trump wagon. Which is why there was a line around the block to get exemptions. (“Kiss the ring, you get the exemption”).

    1. A part of me supports tariffs. The government has a duty to police the borders, and to protect goods that flow across them. So why not charge a fee? Long as the fee’s purpose is to facilitate the crossing of borders and maintaining property rights for people who aren’t available to oversee their stuff being transported. That’s what government is for, right? In an idealistic libertopia.

      1. The government has a duty to police the borders, and to protect goods that flow across them.

        Hmmm, no magical hackerman leading white space. So how do we square this with your repeated hysterical screeching about how opposition to unfettered migration with no limits, documentation, or health and safety checks, as well as your copy-pasting from Economics In One Lesson, which in your case was no misnomer, about how tariffs are an evil tax on production? Oh, I know, you’ll lie and say you never said what you said, hoping that everyone else’s memory has been ravaged by decades of drug and alcohol addiction like yours.

      2. So why not charge a fee?

        There is a difference between charging an inspection fee and charging a tariff. There is no good economic reason to charge a tariff. It is a completely 100% political decision. It is unquestionably an economic harm.

        1. In the sense that any tax is an economic harm, I agree with you.

          That said, if Tariffs were applied equally as a revenue rather than a punishment or economic leverage, and were levied in lieu of an Income tax, I would prefer that to today. It is essentially establishing a consumptive tax.

          In theory. Since the government would tax us with tariffs AND income taxes, that theory will never prove real.

          1. I understand fully that the government needs to fund its operations somehow (other than printing money), so I suppose yes, in the sense that a tariff can be used as fundraising yes, that’s an understandable choice. I was more referring to tariffs in the punitive market-control usage which I see as total nonsense.

            That said, if I were emperor of a land, I wouldn’t fund my state through tariffs or income taxes. Tariffs just beget smuggling and trade is too important. Income taxes waste too much time and effort figuring out what counts as “earnings”. The simplest and most effective tax is the one that every business uses: A flat head tax. You live in the country, you pay $X. Done. Not to say that all other ways are wrong, but that’s just the one I think works best.

  7. I’d like to see Trump’s buddy Peter Navarro comment on the points brought up in this article.

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  9. So, the tariffs were for more than just making companies come back to the US.

  10. I mean, we knew this. We knew when Bush put tariffs in place in the early 2000s too. We were better off just lighting money on fire.

    What’s missing is that these were illegally set anyhow. Tariffs for national security is the president’s purview and there was no such need for it here or the ones we levied on Canada, etc. It’s just sad that Congress has fully abdicated their duty to ever be a check on the president. Overpaid lazy SOBs.

    1. Amnesty for illegal aliens in contravention of the constitutional purview of congress was A-OK though. So are federal mask and vaccine mandates. Thank Fauci (PBUH) we have finally returned to normalcy.

  11. A new study shows that former President Donald Trump’s tariffs did little to push American companies out of China.

    Changing supply chains takes time and money. Given that manufacturers were expecting that a globalist, China-friendly administration would come back into power, they weren’t going to invest the money, and their bet paid off.

    How is that in any way surprising?

  12. Fuck Donald Trump

    1. Fuck Joe Biden

  13. lol… Eric Boehm reminds me of Politifact.

    The Study shows U.S. Companies did pull out of China by 11% and that even with economic growth pulling out in total of 1% (cherry-picking the years 2017-2019); even though our *cherry-picking* STILL shows a 1% deduction; since it’s so small we deem….

    Trumps claim FALSE….. lol… Just like politifact does; gives you all the necessary information and rules against that information 100% in contradiction.

  14. At the core of former President Donald Trump’s aggressive trade policies was a relatively simple—perhaps overly simplified—promise: Tariffs on Chinese-made products would drive manufacturers out of China.

    Bullshit.

    Trump’s tariffs drove up costs for manufacturers based in China.

    Which accelerated the process of them leaving China for cheaper countries like Vietnam and India.

    Which was their purpose in the first place and exactly what to they still do.

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