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[2112.04218v1] Global Financial Cycle, Commodity Terms of Trade and Financial Spreads in Emerging Markets and Developing Economies

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# Economics > General Economics

**arXiv:2112.04218v1** (econ) 

[Submitted on 8 Dec 2021]

# Title:Global Financial Cycle, Commodity Terms of Trade and Financial Spreads in Emerging Markets and Developing Economies

Authors:[Jorge Carrera](https://arxiv.org/search/econ?searchtype=author&query=Carrera,+J), [Gabriel Montes-Rojas](https://arxiv.org/search/econ?searchtype=author&query=Montes-Rojas,+G), [Fernando Toledo](https://arxiv.org/search/econ?searchtype=author&query=Toledo,+F)

View a PDF of the paper titled Global Financial Cycle, Commodity Terms of Trade and Financial Spreads in Emerging Markets and Developing Economies, by Jorge Carrera and 2 other authors

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> Abstract:We study the diffusion of shocks in the global financial cycle and global liquidity conditions to emerging and developing economies. We show that the classification according to their external trade patterns (as commodities' net exporters or net importers) allows to evaluate the relative importance of international monetary spillovers and their impact on the domestic financial cycle volatility -i.e., the coefficient of variation of financial spreads and risks. Given the relative importance of commodity trade in the economic structure of these countries, our study reveals that the sign and size of the trade balance of commodity goods are key parameters to rationalize the impact of global financial and liquidity conditions. Hence, the sign and volume of commodity external trade will define the effect on countries' financial spreads. We implement a two-equation dynamic panel data model for 33 countries during 1999:Q1-2020:Q4 that identifies the effect of global conditions on the countries' commodities terms of trade and financial spreads, first in a direct way, and then by a feedback mechanism by which the terms of trade have an asymmetric additional influence on spreads. 

Comments: | 32 pages, 14 figures, 2 tables  
---|---  
Subjects: |  General Economics (econ.GN)  
Cite as: | [arXiv:2112.04218](https://arxiv.org/abs/2112.04218) [econ.GN]  
  | (or  [arXiv:2112.04218v1](https://arxiv.org/abs/2112.04218v1) [econ.GN] for this version)   
  |  <https://doi.org/10.48550/arXiv.2112.04218> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Gabriel Montes-Rojas [[view email](/show-email/41a19147/2112.04218)]   
**[v1]** Wed, 8 Dec 2021 10:40:42 UTC (2,158 KB)  


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# The Impact of Trade and Tariffs on the United States

June 27, 2018June 27, 202417 min readBy: [Erica York](https://taxfoundation.org/about-us/staff/erica-york/)

[Download PDF](https://files.taxfoundation.org/20180627113002/Tax-Foundation-FF595-1.pdf)

## Key Findings

  * Trade barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.

  * Measures of trade flows, such as the [trade balance](https://taxfoundation.org/blog/trade-deficit-myths/), are accounting identities and should not be misunderstood to be indicators of economic health. Production and exchange - regardless of the balance on the current account - generate wealth.

  * Since the end of World War II, the world has largely moved away from protectionist trade policies toward a rules-based, open trading system. Post-war trade liberalization has led to widespread benefits, including higher income levels, lower prices, and greater consumer choice.

  * Openness to trade and investment has substantially contributed to U.S. growth, but the U.S. still maintains duties against several categories of goods. The highest [tariff](https://taxfoundation.org/tax-basics/tariffs/)s are concentrated on agriculture, textiles, and footwear.

  * The Trump administration has enacted tariffs on imported solar panels, washing machines, steel, and aluminum, plans to impose tariffs on Chinese imports, and is investigating further tariffs on Chinese imports and automobile imports.

  * The effects of each [tariff](https://taxfoundation.org/taxedu/glossary/tariffs/)Tariffs are taxes imposed by one country on goods imported from another country. Tariffs are [trade barriers](https://taxfoundation.org/topics/tariffs-and-trade/) that raise prices, reduce available quantities of goods and services for [US businesses and consumers](https://taxfoundation.org/research/all/federal/trump-tariffs-biden-tariffs/), and create an economic burden on foreign exporters.  will be lower GDP, wages, and employment in the long run. The tariffs will also make the U.S. [tax](https://taxfoundation.org/tax-basics/tax/) code less progressive because the increased [tax](https://taxfoundation.org/taxedu/glossary/tax/)A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.  burden would fall hardest on lower- and middle-income households.

  * Rather than erect barriers to trade that will have negative economic consequences, policymakers should promote free trade and the economic benefits it brings.




## Introduction

Trade barriers, such as tariffs, have been demonstrated to cause more economic harm than benefit; they raise prices and reduce availability of goods and services, thus resulting, on net, in lower income, reduced employment, and lower economic output.

Since the end of World War II, the world has largely moved away from protectionist trade policies toward a rules-based, open trading system. This widespread reduction in trade barriers has contributed to economic prosperity in many ways, including large increases in trade activity and accompanying gains in economic output and income.

Openness to trade and investment has substantially contributed to U.S. growth, but the U.S. still maintains duties against several categories of goods. The overall effective rate of these tariffs appears low, but varies widely across categories of goods. Some of the highest duties apply to clothing, apparel, and footwear; some of the lowest apply to aircrafts, spacecrafts, and live animals.

This paper provides a brief overview of tariffs, the basic economics of trade and barriers to trade, and explains why the trade balance shouldn't be viewed as an indicator of economic health. Then the paper reviews the current [United States](https://taxfoundation.org/location/united-states/) Harmonized Tariff Schedule and recent developments in United States tariff policies.

## Overview of Tariffs

Tariffs are a type of [excise tax](https://taxfoundation.org/taxedu/glossary/excise-tax/)An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, [soda](https://taxfoundation.org/taxedu/glossary/soda-tax/), [gasoline](https://taxfoundation.org/taxedu/glossary/gas-tax/), insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections.  that is levied on goods produced abroad at the time of import. They are intended to increase consumption of goods manufactured at home by increasing the price of foreign-produced goods. [1]

Generally, tariffs result in consumers paying more for goods than they would have otherwise in order to prop up industries at home. Though tariffs may afford some short-term protection for domestic industries that produce the goods subject to tariffs by shielding competition, they do so at the expense of others in the economy, including consumers and other industries.[2]

As consumers spend more on goods on which the duty is imposed, they have less to spend on other goods--so, one industry is propped up to the disadvantage of all others. This results in a less efficient allocation of resources, which can then result in slower economic growth. Tariffs also tend to be regressive in nature, burdening lower-income consumers the most.

## Trade and the economy

Trade makes a nation wealthy, and conversely, trade restrictions make a nation poorer.[3]

Trade enables nations to specialize in activities in which they have a comparative advantage; in other words, what they can produce at a relatively lower opportunity cost, and trade for what they would otherwise have to produce at a higher opportunity cost.[4] This means nations produce more goods and services for less and exchange those for goods and services from other countries, resulting in higher levels of consumption than would be possible without trade.

Through this process, productivity increases as resources flow to the economic activities in which a country has a comparative advantage.[5] This leads to employment gains where production is most efficient, though it can also lead to employment losses in sectors where production is comparatively less efficient--an outcome of which policymakers should remain cognizant. On net, though, trade results in higher levels of productivity, income, and output throughout the economy. And over time, increased trade has made the United States more productive and has contributed to large increases in Americans' standard of living.[6]

![Impact of Trade and Tariffs on the United States Graph](/wp-content/uploads/2018/06/FF595_chart.png)

Since the end of World War II, growth in annual real global trade has outpaced GDP growth, growing on average 1.5 times faster.[7] Much of this increase in trade can be explained by reductions in barriers to international exchange, such as tariffs and quotas.[8] Post-war trade liberalization has led to widespread benefits, including higher income levels, lower prices, and greater consumer choice.[9]

Estimates of these post-war gains from freer trade range up to $10,000 per household in the United States.[10] The positive, long-term economic effects of trade - increased competition, innovation, productivity, employment, wages, and output - provide benefits that outweigh the short-term transition costs trade can cause.

## But what about trade balances?

Trade clearly results in positive economic outcomes, allowing people in different countries to specialize in what they do best, and then exchange physical goods, services, and financial assets across borders. But there are often misperceptions about the measurements that economists and policymakers use to track flows of trade.

The balance-of-payments system consists of the current account, which measures the flow of goods and services, and the capital account, which records the flow of finances.[11] Walking through an example of a business that imports and exports is useful to understand how the balance-of-payments system works.[12]

Suppose an American business loads $100 million worth of goods it produced onto a cargo ship. When the ship leaves the country, it is credited to the current account as an export of $100 million. Now suppose that the business sells the goods to [France](https://taxfoundation.org/location/france/); after shipping and other costs, the business makes a 20 percent profit selling to French customers.

The business now has $120 million it can use to make purchases in France. Suppose they decide to purchase wine, load it back on the now-empty cargo ship, and return to the United States; the value of the imported wine ($120 million) is debited from the current account. The business now sells the wine to its American customers, making another $10 million in profit. The business has made $20 million from the original sell of the goods in the cargo ship, and another $10 million from selling the imported wine, for a net profit of $30 million.

According to the current accounts, America has exported $100 million to France and imported $120 million from France--resulting in a so-called [trade deficit](https://taxfoundation.org/blog/trade-deficit-myths/) of $20 million. But, we can see that the American business is clearly better off by having made these exchanges, $30 million better off.

Suppose in the next month, the American business sends another cargo ship to France with another $100 million worth of goods. But unfortunately, the entire ship sinks before it reaches France, leaving the business at a total loss. The $100 million export was credited to the current account; because there is no corresponding import, the national accounts show a trade surplus of $100 million. We can agree that no one has been made better off here, even though the accounting identity shows a trade surplus.

The capital account is also involved in these transactions, recording the exchange of financial assets, like currency. When the U.S. business buys wine from France, they give U.S. dollars in exchange for that wine--this is credited to the capital account. Conversely, when the U.S. business sold goods to France in exchange for Euros, this was debited to the capital account. Thus, in the example above, the capital account had a $20 million surplus. This indicates that foreigners have U.S. dollars that, at some point in the future, will be reinvested into the United States. In other words, when we spend dollars on foreign goods, those dollars do not disappear; they will return to the U.S. as a capital inflow at some time in the future.

The balance-of-payments system is simply an accounting identity; the current and capital accounts track flows of goods, services, and financial assets between people, and they move in the opposite direction of one another. A current account (trade) deficit is simply another way of stating that we have a capital account surplus; neither has a causal implication for the health of the economy. Whether a business sells to or buys from domestic or foreign consumers, they do so because the trade is profitable. Production and exchange - regardless of the balance on the current account - generate wealth.

## Barriers to trade reduce economic output and incomes

When countries erect barriers to trade, such as tariffs, they raise prices and divert resources away from relatively efficient economic activities towards less efficient economic activities.[13] It is worth noting that in addition to tariffs, many other policy measures can create barriers to trade that have effects like tariffs.[14] As a result of such measures, consumers pay more for goods than they otherwise would have, businesses face higher costs than they otherwise would have, and on net, output and employment fall.

Tariffs in particular can have this effect through a few channels. One possibility is that a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of intermediate goods such as parts and materials, which then raises the price of goods that use those inputs and reduces private sector output.[15], [16] This would result in lower incomes for both workers and the owners of capital. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because these higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.[17]

Alternatively, the U.S. dollar may appreciate in response to tariffs, offsetting the potential price increase on U.S. consumers.[18] However, the more valuable dollar would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower U.S. output and incomes for both workers and owners of capital, reducing incentives for work and investment, and leading to a smaller economy.

Academic studies have quantified the costs of tariffs and shown that tariffs often fail to achieve their objectives.[19] A comprehensive study of tariffs in place in 1990 found that the annual consumer costs per American job "saved" range from $100,000 to over $1 million, with an average of $170,000.[20] More recently, a study analyzing the 2002 steel tariffs imposed by the George W. Bush administration found that the first year the tariffs were in effect, more American workers lost their jobs due to higher steel prices (200,000) than the total number employed by the steel industry itself at the time (187,500).[21]

These results aren't unique to the 2002 steel tariffs. A Congressional Budget Office report from 1986 reviewed the effects of protectionist policies covering textiles and apparel, steel, footwear, and automobiles. The policies did effectively increase costs, which resulted in slightly higher profits for the firms. However, the report finds, "In none of the cases studied was protection sufficient to revitalize the affected industry."[22]

The outcomes of past protectionist policies indicate that protectionism simply does not work. Any potential short-term benefits of using protectionist policies to shield domestic industries from foreign competition come at the expense of others in the economy; the consequences are higher prices, less efficient resource allocation, and job losses throughout other sectors, and in the long run, failure to help the intended beneficiaries.

## The United States Maintains a Wide Variety of Tariffs

While global trade restrictions have dramatically fallen over the past several decades, the United States still maintains many tariffs on a wide variety of goods. The United States International Trade Commission (USITC) publishes the Harmonized Tariff Schedule, which contains 99 chapters describing various tariffs that apply to different categories of goods.[23] The USITC also maintains a tariff database, reporting statistics that include the value of imports appraised by the U.S. Customs Service as well as estimates of the calculated duties by commodity.

A superficial glance at the database might convey the idea that tariffs are relatively small. For example, in 2017, the total value of imports was $2.3 trillion and the total estimated duties were $33.1 billion, implying an overall average tariff of about 1.42 percent.[24] Though the average U.S. tariff looks small, some individual categories of goods are subject to much higher import barriers.

In 2017, for example, the United States imported $109.5 billion worth of textiles and textile articles, and paid $12.6 billion in tariffs on these imports, or an average applied tariff of 11.5 percent.[25] Within this category of imported goods, some subcategories faced even higher tax burdens. The rate on knitted or crocheted apparel and clothing accessories was above 14 percent in 2017.[26]

Browsing the Harmonized Tariff Schedule shows that in some cases, even higher rates may apply. The maximum rate of duty that applies to "Men's or boy's overcoats, carcoats, capes, cloaks, anoraks (including ski jackets), windbreakers and similar articles, knitted or crocheted - Other" is 72 percent.[27] The most recent World Trade Organization Policy Review of the United States found that:[28]

Tariffs above 25% ad valorem are concentrated in agriculture (notably dairy, tobacco, and vegetable products), footwear, and textiles. An estimated 22 tariff lines corresponding to agricultural products carry import duty rates above 100%.

Source: United States International Trade Commission, "Interactive Tariff and Trade DataWeb," https://dataweb.usitc.gov/  
---  
Table 1:Higher Average Rates Apply to Certain Sections of the Harmonized Tariff Schedule, Billions of Dollars Section | Customs Value | Calculated Duty | Average Applied Rate  
XI: Textiles and Textile Articles | $109.5 | $12.6 | 11.53%  
VIII: Raw Hides and Skins, Leather, Furskins and Articles Thereof; Saddlery and Harness; Travel Goods, Handbags and Similar Containers; Articles of Animal Gut (Other Than Silkworm Gut) | 13.8 | 1.4 | 10.20%  
XII: Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking Sticks, Seatsticks, Whips, Riding-Crops and Parts Thereof; Prepared Feathers and Articles Made Therewith; Artificial Flowers; Articles of Human Hair | 30.7 | 3.1 | 10.09%  
**All Sections** | **2,313.0** | **33.1** | **1.42%**  
  
In addition to causing economic harm for the reasons discussed above, tariffs generally have nonneutral impacts across different goods and different sectors, and this nonneutrality can further reduce welfare. Uneven tax burdens may distort investment decisions, adding complexity that penalizes certain goods worse than others and thus negatively impacting economic growth. Though tariffs generated a relatively small amount of revenue in 2017, $33.1 billion, high rates concentrated on certain categories of imports creates distortions in the economy.

## Tariffs and the Trump Administration

Within the first few months of 2018, the Trump administration enacted tariffs on imported solar panels, washing machines, steel, and aluminum.[29] The administration plans to soon impose a 25 percent tariff on $50 billion worth of Chinese imports.[30] In addition to these planned tariffs, pending investigations regarding further tariffs on up to $100 billion more worth of Chinese imports as well as automobile imports mean more tariffs could be imposed going forward.[31]

The rationale for these various tariffs range from national security to misconceptions about trade balances to alleged intellectual property theft by China. Though there is wide agreement that certain trading practices are unfair and call for a response, levying broad tariffs is not likely the approach that will result in the desired policy changes.[32] The effects of each tariff will be lower GDP, wages, and employment in the long run.[33]

For example, according to the Tax Foundation's Taxes and Growth model, President Trump's proposal to raise taxes by approximately $37.5 billion annually (by levying a 25 percent tariff on $150 billion worth of Chinese imports) would reduce the long-run level of GDP by 0.1 percent, or about $20 billion.[34] The smaller economy would result in 0.1 percent lower wages and 79,000 fewer full-time equivalent jobs. The tariffs will also make the U.S. tax code less progressive because the increased tax burden would fall hardest on lower- and middle-income households.[35]

Source: Tax Foundation Taxes and Growth Model, March 2018  
---  
Table 2. Economic Impact of Tariffs on $150 Billion in Chinese Imports Change in long-run GDP | -0.1%  
Change in long-run GDP (Billions $2018) | -$20.6  
Change in long-run wage rate | -0.1%  
Change in full-time equivalent jobs | -79,000  
  
These estimates do not account for the uneven impact these taxes would have across sectors, nor the costs of retaliatory actions that have already been imposed and may be proposed in the future. These effects would both result in worse economic outcomes.

## Conclusion

Since the end of World War II, public policy has shifted to embrace free and open trade, and reduced many trade barriers. This increase in international trading activity has led to increases in productivity, employment, output, and incomes for the countries involved.

Though historically the United States has led the movement toward free and open trade, the U.S. maintains high tariffs on select categories of goods. These sectors of the economy are not open to free trade or the competitive pressures free trade entails, and the related prices are artificially raised because of tariffs and other restrictions. Rather than focus trade policy on reducing these barriers, recent actions by the Trump administration have been to levy new tariffs and threaten further trade restrictions.

History has shown that tariffs fail to achieve their intended objectives, and result in higher prices, lower employment, and slower economic growth in the long run. Rather than erect barriers to trade that will have negative economic consequences, policymakers should promote free trade and the economic benefits it brings.

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## Notes

[1] Jagdish Bhagwati, "Protectionism," in David R. Henderson, ed., _The Concise Encyclopedia of Economics_ (Indianapolis: Liberty Fund Inc., 2002), [www.econlib.org/library/Enc/Protectionism.html](http://www.econlib.org/library/Enc/Protectionism.html).

[2] Adam Smith, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home," in _An Inquiry into the Nature and Causes of the Wealth of Nations,_ Book IV, Chapter II, [www.econlib.org/library/Smith/smWN13.html#B.IV](http://www.econlib.org/library/Smith/smWN13.html#B.IV). 

[3] James K. Glassman, "The Blessings of Free Trade," Cato Institute, May 1, 1998, <https://www.cato.org/publications/trade-briefing-paper/blessings-free-trade>.

[4] Adam Smith, "That the Division of Labour is Limited by the Extent of the Market," in _An Inquiry into the Nature and Causes of the Wealth of Nations_ , Book 1, Chapter III, <http://www.econlib.org/library/Smith/smWN1.html#B.I>.

[5] Donald J. Boudreaux, "Comparative Advantage," in David R. Henderson, ed., _The Concise Encyclopedia of Economics_ (Indianapolis: Liberty Fund Inc., 2002), [www.econlib.org/library/Enc/ComparativeAdvantage.html](http://www.econlib.org/library/Enc/ComparativeAdvantage.html).

[6] Council of Economic Advisers, "Chapter 4: The Benefits of Open Trade and Investment Policies," _Economic Report of the President (2009)_ ([Washington](https://taxfoundation.org/location/washington/), D.C.: U.S. Government Printing Office, January 2009), <https://georgewbush-whitehouse.archives.gov/cea/ERP_2009_Ch4.pdf>.

[7] Cathleen D. Cimino-Isaacs, "U.S. Trade Policy Primer: Frequently Asked Questions," Congressional Research Service, April 2, 2018.

[8] Ibid.

[9] Scott C. Bradford, Paul L. E. Grieco, and Gary Clyde Hufbauer, "The Payoff to America from Global Integration," Peterson Institute for International Economics, Jan. 1, 2005, <https://piie.com/sites/default/files/publications/chapters_preview/3802/2iie3802.pdf>.

[10] Council of Economic Advisers, "Chapter 4: The Benefits of Open Trade and Investment Policies," 132.

[11] Mack Ott, "International Capital Flows," in David R. Henderson, ed., _The Concise Encyclopedia of Economics_ (Indianapolis: Liberty Fund Inc., 2002), <http://www.econlib.org/library/Enc/InternationalCapitalFlows.html>. 

[12] The illustration is based on Frederick Bastiat's _Selected Essays on Political Economy_ : "The Balance of Trade," [www.econlib.org/library/Bastiat/basEss.html?chapter_num=16#book-reader](http://www.econlib.org/library/Bastiat/basEss.html?chapter_num=16#book-reader).

[13] Adam Smith, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home," in _An Inquiry into the Nature and Causes of the Wealth of Nations_. 

[14] See Scott Lincicome, "Don't Blame Free Trade. We Don't Have it," Foundation for Economic Education, Nov. 21, 2016, <https://fee.org/articles/dont-blame-free-trade-we-dont-have-it/>.

[15] Dean Russell, "Tariffs Kills Jobs," Foundation for Economic Education, Feb. 1, 1962, <https://fee.org/articles/tariffs-kills-jobs/>.

[16] Chad P. Brown, "The Element of Surprise Is a Bad Strategy for a Trade War," Peterson Institute for International Economics, April 16, 2018, <https://piie.com/commentary/op-eds/element-surprise-bad-strategy-trade-war>.

[17] Kyle Pomerleau and Erica York, "Modeling the Impact of President Trump's Proposed Tariffs," Tax Foundation, April 12, 2018, <https://taxfoundation.org/modeling-impact-president-trumps-proposed-tariffs/>.

[18] Alan S. Blinder, "Free Trade," in David R. Henderson, ed., _The Concise Encyclopedia of Economics_ (Indianapolis: Liberty Fund Inc., 2002), <http://www.econlib.org/library/Enc/FreeTrade.html>.

[19] Scott Lincicome, "Doomed to Repeat It," The Cato Institute, August 22, 2017, <https://object.cato.org/sites/cato.org/files/pubs/pdf/pa-819-updated.pdf>.

[20] Gary Clyde Hufbauer and Kimberly Ann Elliott, "Measuring the Costs of Protection in The United States," Peterson Institute for International Economics, January 1994, <https://piie.com/bookstore/measuring-costs-protection-united-states>.

[21] Erica York, "Lessons from the 2002 Bush Steel Tariffs," Tax Foundation, March 12, 2018, <https://taxfoundation.org/lessons-2002-bush-steel-tariffs/>.

[22] Congressional Budget Office, "Has Trade Protection Revitalized Domestic Industries?" November 1986, xiii. <https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/61xx/doc6186/doc25c-entire.pdf>.

[23] United States International Trade Commission, "Harmonized Tariff Schedule (2018 HTSA Revision 5)," May 2018, <https://hts.usitc.gov/current>.

[24] United States International Trade Commission, "Interactive Tariff and Trade DataWeb," April 2018, <https://dataweb.usitc.gov/>.

[25] Ibid.

[26] Ibid.

[27] United States International Trade Commission, "Harmonized Tariff Schedule (2018 HTSA Revision 5)," Chapter 61, 61-4.

[28] World Trade Organization, "Trade Policy Review, Report by the Secretariat, United States," March 28, 2017, file:///C:/Users/rshuster/Downloads/S350R1.pdf.

[29] Erica York, "President Trump Approves Tariffs on Washing Machines and Solar Cells," Tax Foundation, Jan. 30, 2018, <https://taxfoundation.org/trump-tariffs-washing-machines-solar-cells/>; and Erica York, "President Trump Announces Two Steep Tariffs on Steel and Aluminum," Tax Foundation, March 2, 2018, <https://taxfoundation.org/trump-steel-tariff-aluminum-tariff/>.

[30] Donna Borak and Nathaniel Meyersohn, "White House slaps 25% tariff on $50 billion worth of Chinese goods," CNNMoney, May 29, 2018, <http://money.cnn.com/2018/05/29/news/economy/china-tariffs/index.html>.

[31] Erica York, "Potential of Trade War Threatens New Tax Law's Benefits," Tax Foundation, April 6, 2018, <https://taxfoundation.org/potential-trade-war-threatens-new-tax-laws-benefits/>.

[32] Scott Lincicome, "Chinese Intellectual Property Policies Demand a Smart U.S. Trade Policy Response - One President Trump Doesn't Appear to be Considering," Cato Institute, Jan. 2, 2018, <https://www.cato.org/blog/chinese-intellectual-property-policies-demand-smart-us-trade-policy-response-one-president>.

[33] Scott Drenkard, "It's Tariff Time: What Can Adam Smith Teach Us About Trade Policy Today?," Tax Foundation, March 2, 2018, <https://taxfoundation.org/adam-smith-trump-tariffs/>.

[34] Kyle Pomerleau and Erica York, "Modeling the Impact of President Trump's Proposed Tariffs," Tax Foundation, April 12, 2018, <https://taxfoundation.org/modeling-impact-president-trumps-proposed-tariffs/>.

[35] Erica York, "Automobile Tariffs Would Offset Half the TCJA Gains for Low-income Households," Tax Foundation, June 4, 2018, <https://taxfoundation.org/automobile-tariffs-2018/>.

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url: http://arxiv.org/abs/2306.07211v1
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[2306.07211v1] Differential Game Analysis for Cooperation Models in Automotive Supply Chain under Low-Carbon Emission Reduction Policies

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# Computer Science > Computer Science and Game Theory

**arXiv:2306.07211v1** (cs) 

[Submitted on 12 Jun 2023]

# Title:Differential Game Analysis for Cooperation Models in Automotive Supply Chain under Low-Carbon Emission Reduction Policies

Authors:[Yukun Cheng](https://arxiv.org/search/cs?searchtype=author&query=Cheng,+Y), [Zhanghao Yao](https://arxiv.org/search/cs?searchtype=author&query=Yao,+Z), [Xinxin Wang](https://arxiv.org/search/cs?searchtype=author&query=Wang,+X)

View a PDF of the paper titled Differential Game Analysis for Cooperation Models in Automotive Supply Chain under Low-Carbon Emission Reduction Policies, by Yukun Cheng and 2 other authors

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> Abstract:In the context of reducing carbon emissions in the automotive supply chain, collaboration between vehicle manufacturers and retailers has proven to be an effective measure for enhancing carbon emission reduction within the enterprise. This study aims to evaluate the effectiveness of such collaboration by constructing a differential game model that incorporates carbon trading and consumer preferences for low-carbon products. The model examines the decision-making process of an automotive supply chain comprising a vehicle manufacturer and multiple retailers. By utilizing the Hamilton-Jacobi-Bellman equation, we analyze the equilibrium strategies of the participants under both a decentralized model and a Stackelberg leader-follower game model. In the decentralized model, the vehicle manufacturer optimizes its carbon emission reduction efforts, while each retailer independently determines its low-carbon promotion efforts and vehicle retail price. In the Stackelberg leader-follower game model, the vehicle manufacturer cooperates with the retailers by offering them a subsidy. Consequently, the manufacturer plays as the leader, making decisions on carbon emission reduction efforts and the subsidy rate, while the retailers, as followers, compute their promotion efforts and retail prices accordingly. Through theoretical analysis and numerical experiments considering the manufacturer's and retailers' efforts, the low-carbon reputation of vehicles, and the overall system profits under both models, we conclude that compared to the decentralized model, where each party pursues individual profits, the collaboration in the Stackelberg game yields greater benefits for both parties. Furthermore, this collaborative approach promotes the long-term development of the automotive supply chain. 

Subjects: |  Computer Science and Game Theory (cs.GT)  
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Cite as: | [arXiv:2306.07211](https://arxiv.org/abs/2306.07211) [cs.GT]  
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  |  <https://doi.org/10.48550/arXiv.2306.07211> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Zhanghao Yao [[view email](/show-email/1bb50793/2306.07211)]   
**[v1]** Mon, 12 Jun 2023 16:15:20 UTC (159 KB)  


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url: https://www.brookings.edu/articles/what-are-tariffs-and-why-are-they-rising/
title: What are tariffs, and why are they rising?
scrape_date: 2025-02-28T17:41:58.037594
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# What are tariffs, and why are they rising?

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[Elijah Asdourian]() and 

[ ![Elijah Asdourian](https://www.brookings.edu/wp-content/uploads/2022/08/Eli-Asdourian.png?quality=75&w=177) ]()

Elijah Asdourian Former Senior Research Assistant  \- [Economic Studies](https://www.brookings.edu/programs/economic-studies/), [The Hutchins Center on Fiscal and Monetary Policy](https://www.brookings.edu/centers/the-hutchins-center-on-fiscal-and-monetary-policy/)

[David Wessel](https://www.brookings.edu/people/david-wessel/)

[ ![David Wessel](https://www.brookings.edu/wp-content/uploads/2016/07/Wessel.jpg?quality=75&w=200) ](https://www.brookings.edu/people/david-wessel/)

[ David Wessel ](https://www.brookings.edu/people/david-wessel/) Director  \- [The Hutchins Center on Fiscal and Monetary Policy](https://www.brookings.edu/centers/the-hutchins-center-on-fiscal-and-monetary-policy/), Senior Fellow  \- [Economic Studies](https://www.brookings.edu/programs/economic-studies/)

February 11, 2025

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**Editor's note:**

This piece was first published on July 1, 2024, and has been updated since.

### What are tariffs?

Tariffs are taxes that countries impose on imported goods when they cross the border. From the founding of the United States until 1914, when the federal income tax was introduced, [tariffs were the main source of revenue to the federal government](https://www.piie.com/research/piie-charts/even-now-tariffs-are-tiny-portion-us-government-revenue). After World War II, the U.S. joined the General Agreement on Tariffs and Trade (GATT) with 22 other countries, which aimed to promote international trade, and began decreasing tariffs. The downward trend in tariff rates continued until 2018, when the Trump administration raised tariffs on several products, especially those imported from China, igniting a trade war. Tariffs on China stopped increasing in January 2020 but have yet to decrease substantially, and [remain well above their pre-2018 levels](https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart). The Biden administration kept Trump-era tariffs on China in place, and raised them on steel, aluminum, medical equipment, electric vehicles, lithium-ion batteries, and solar cells in May 2024. In his first month in office, President Trump imposed [a 10% tariff on imports from China](https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/), a [25% tariff on all imports of steel and aluminum,](https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-restores-section-232-tariffs/) and threatened additional tariffs. 

Unlike other taxes, which require the consent of Congress, [legislation passed in 1934, 1962, and 1974](https://www.cfr.org/backgrounder/truth-about-tariffs#chapter-title-0-4) gives the executive branch substantial to raise tariff rates if it serves a national security interest. 

![](https://www.brookings.edu/wp-content/uploads/2024/07/US-China-trade-war.png?quality=75&w=894)

[Chart courtesy of Peterson Institute for International Economics [linked]](https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart)

### Why do countries impose tariffs?

Among the reasons that countries impose tariffs are to protect domestic industries (particularly those vital to national security), to incentivize foreign countries to change their practices, and to raise revenue. The Trump and Biden administrations said they imposed tariffs for the first two reasons. 

Even with the tariffs imposed during the first Trump and Biden administrations, [tariff revenues in fiscal year 2024](https://fiscaldata.treasury.gov/static-data/published-reports/mts/MonthlyTreasuryStatement_202409.pdf) were about $77 billion, a very small fraction of the $5.27 trillion in total U.S government revenues for that year. The global proliferation of free agreements since World War II has substantially lowered tariff rates, and in turn lowered tariff revenue in wealthy countries, though [a number of developing countries still rely on tariffs](https://www.piie.com/research/piie-charts/mainly-poor-countries-use-tariffs-major-source-government-revenue) for a substantial proportion of government revenues. 

![](https://www.brookings.edu/wp-content/uploads/2024/07/US-tariff-rates-post-WW2.png?quality=75&w=624)

[Chart courtesy of The Coalition for a Prosperous America [linked]](https://prosperousamerica.org/u-s-trade-policy-over-half-a-century-of-low-unreciprocated-tariff-cuts/)

### Who bears the costs of tariffs?

The burden of tariffs can fall on consumers (who may pay higher prices), on importers (who may absorb the cost by reducing their profits and not pass it along to consumers), on exporters (who may absorb the cost and accept lower net prices for their goods), or on some mix of those. Tariffs are often imposed on intermediate goods—goods that are used in the production of things that consumers buy—and this can both erode producers’ profits (unless they find domestic substitutes for those inputs) and raise the prices they charge consumers. Which party bears the heaviest burden depends on the specific market. 

[A literature review by the Tax Foundation](https://taxfoundation.org/blog/who-really-pays-tariffs/) found that U.S. consumers and firms bore the brunt of costs in the recent trade war, with some studies finding partial pass-through (the price increases, but not by as much as the tariff, hurting both importers and consumers), others finding almost complete pass-through (the price increases by the amount of the tariff), and a couple of cases of over-shifting (the price increases by more than the amount of the tariff). They did not find substantial evidence that foreign exporters absorbed the economic burden of the tariffs by lowering prices. 

### What impact do tariffs have on economic growth?

The Congressional Budget Office (CBO) says that the effect of tariffs on output can be ambiguous. On the one hand, some consumers end up buying domestic goods instead of imported goods, and tariff revenues make more resources available for private investment by decreasing the national deficit. These factors increase GDP. On the other, the purchasing power of consumers goes down as goods are more expensive, retaliatory tariffs decrease exports, and some businesses delay new investments out of caution. These factors all decrease GDP. 

On balance, [economists tend to agree](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7255316/) that free trade (low tariffs) increases economic growth more than protectionist trade policy (high tariffs). Free trade allows producers with comparative advantage to get their products to the market cheaply and efficiently, and tariffs get in the way. Additionally, while tariffs may protect infant industries, they can also reduce competition, with adverse effects on an economy. In the 20th century, many developing countries put large tariffs on imported goods using a strategy called “import substitution” to give a country’s domestic industries a leg up until they could compete with advanced countries. In practice, [those industries often remained underdeveloped](https://www.piie.com/sites/default/files/documents/wp20-10.pdf), as they never had to compete with better technology. 

Today’s advocates of tariffs say that the textbook models don’t resemble reality because China, in particular, heavily subsidizes key industries and gives them an advantage of over American producers—and could put them out of business altogether, giving China a monopoly. 

When the U.S. imposes tariffs on other countries, they often retaliate in ways that hurt the U.S. economy. In January 2025, China, for instance, responded to President Trump’s tariffs by [imposing tariffs on U.S. exports liquefied natural gas, coal, crude oil, farm equipment, and some automotive goods.](https://apnews.com/article/china-tariffs-us-trump-150fab3a44ec055845e47c82bde544c2)

### What are the specific sections of the law that empower the president to impose tariffs?

(This is drawn from a summary prepared by the law firm of [Skadden Arps](https://www.skadden.com/-/media/files/publications/2017/01/significantchangeslikelyforustradepolicyandenforce.pdf) and by the [Congressional Research Service](https://crsreports.congress.gov/product/pdf/R/R45529).) 

  * Trade Expansion Act of 1962, Section 232(b) allows the president, after an investigation by the Department of Commerce, to impose tariffs or quotas on imports that threaten U.S. national security. In January 2025, President Trump [invoked Section 232 to impose tariffs on steel and aluminum.](https://www.whitehouse.gov/presidential-actions/2025/02/adjusting-imports-of-steel-into-the-united-states/)


  * Trade Act of 1974, Section 122 authorizes the president to impose quotas and tariffs of as much as 15% for up to 150 days against countries that have “large and serious” balance-of-payment surpluses with the U.S. This provision has never been invoked. 


  * Trade Act of 1974, Section 201 allows the president to impose tariffs or quotas on imports of a particular product if the U.S. International Trade Commission finds there has been a surge of imports of that product that cause serious injury to the U.S. industry producing that product. For example, [President Trump imposed tariffs on washing machines and solar panels in January 2018 under Section 201.](https://ustr.gov/sites/default/files/files/Press/fs/201%20Cases%20Fact%20Sheet.pdf)


  * Trade Act of 1974, Section 301 authorizes the U.S. Trade Representative to impose tariffs or quotas if it finds that another country has denied the United States its rights under a trade agreement or has engaged in practices that are unjustifiable, unreasonable, or discriminatory and burden or restrict U.S. commerce. For instance, President Biden in May 2024 increased tariffs on Chinese steel, aluminum, semiconductors, and electric vehicles [under Section 301.](https://www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/)


  * The Trading with the Enemy Act (TWEA) and the International Emergency Economic Powers Act of 1977 (IEEPA) authorize the president to regulate all forms of international commerce and freeze assets in time of war (TWEA and IEEPA) or in response to “unusual or extraordinary” international threats to the national security, foreign policy, or economy of the United States (IEEPA). President Trump threatened to invoke IEEPA in May 2019 to impose tariffs on imports from Mexico unless Mexico stemmed the flow of immigrants, but [reached an agreement with Mexico before the tariffs were actually imposed](https://www.csis.org/analysis/us-mexico-tariff-threat-has-passed-now). He [also invoked IEEPA in January 2025](https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/) when he threatened tariffs on Mexico and Canada and imposed them on China. [This use of IEEPA could end up in court.](https://www.politico.com/news/magazine/2025/02/09/trump-tariffs-unconstitutional-supreme-court-00203178)



### What tariffs did the first Trump administration raise, and why?

The Trump administration [argued](https://trumpwhitehouse.archives.gov/briefings-statements/statement-president-regarding-trade-china-2/) tariffs were “imposed to encourage China to change [its] unfair practices,” as they were “threatening United States companies, workers, and farmers.” This statement cited [a report from the Office of the United States Trade Representative](https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/march/president-trump-announces-strong) which found that China’s actions “pressure technology transfer from U.S. companies to Chinese entities … deprive U.S. technology owners of the ability to bargain … and support unauthorized intrusions into, and theft from, the computer networks of U.S. companies.” The administration argued in January 2018 that its initial round of tariffs on washing machines was necessary, as [increasing imports had hurt American washing machine manufacturers’ financial performance](https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/january/president-trump-approves-relief-us). The tariffs, which made imports more expensive, were supposed to increase domestic purchases of washing machines. Trump’s U.S. Trade Representative Robert Lighthizer also [argued in July of that year](https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/statement-us-trade-representative) that “China [had] been engaging in industrial policy which [had] resulted in the transfer and theft of intellectual property and technology to the detriment of our economy,” prompting punitive tariffs to spur a change in policy. Trump frequently cited China’s business practices as the cause of the trade deficit between the U.S. and China, saying in June 2018 that “[the United States [is] at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods](https://trumpwhitehouse.archives.gov/briefings-statements/statement-president-regarding-trade-china-2/).” 

China responded to the initial round with retaliatory tariffs. This prompted both countries to continue increasing tariffs for the better part of two years. The U.S.-China trade war paused in January 2020, [when the U.S. agreed not to impose planned tariffs on China, and China agreed to buy more U.S. exports.](https://www.npr.org/2020/01/15/796305300/trump-to-sign-phase-one-china-trade-deal-but-most-tariffs-remain-in-place) By this point, the level of U.S. tariffs on China had increased from under 5% to over 20%. 

### What did the Biden administration do with tariffs?

The Biden administration did not reduce any of Trump’s tariffs on China, and in May 2024 raised tariffs on steel, aluminum, medical equipment, lithium-ion batteries, and solar cells. 

Biden’s May 2024 tariff increases followed much of the same logic as Trump’s initial 2018 tariffs, albeit without mention of the U.S. trade deficit with China. In its release, the administration argued that “[American workers continue to face unfair competition from China’s non-market overcapacity in steel and aluminum](https://www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/)” and “encourage[d] China to eliminate its unfair trade practices.” The Biden administration, like the Trump administration, sees tariffs on China as both a punitive measure that might spur a change in Chinese industrial policy as well a way to protect domestic manufacturers. 

Though the Biden administration drew [criticism from advocates of free trade](https://www.cato.org/regulation/fall-2022/bidens-protectionism-trumpism-human-face) in both parties for keeping protectionist trade policy, he also has important constituents who want to keep tariffs in place. At the start of his term, the U.S. steel industry, including its union workers, [urged Biden to hold steady](https://www.reuters.com/article/idUSKBN29G2N0/). In November 2023, Democratic senators Bob Casey Jr. and Sherrod Brown, both from Rust Belt states with many union workers, [wrote a letter to Biden arguing that tariffs on steel and aluminum were still necessary.](https://www.brown.senate.gov/newsroom/press/release/sherrod-brown-casey-urge-biden-administration-keep-tariffs-place-chinese-imports)

U.S. Trade Representative Katherine Tai was asked at [a June 2024 event at the Atlantic Council](https://www.youtube.com/live/mGbN0W9_404?si=ByUQFNUUlMbiiPBy&t=2593) where she agrees and differs with Trump’s former USTR Robert Lighthizer. She said they agree the U.S. has to “change [its] approach to trade,” that she and Lighthizer “share a lot of the same diagnoses” on the U.S.-China trade relationship, and that “one of the ways where Bob and I are most different is in rhetoric.” While many economists and some policymakers in the past have emphasized the benefits of trade to American consumers, Tai and Lighthizer emphasize the risks that trade poses to American workers. For more on Tai’s views, [see this interview from Vox.com](https://www.vox.com/policy/357191/katherine-tai-united-states-trade-biden-trump-tariffs). For more on Lighthizer’s commentary, [see this site](https://americafirstpolicy.com/team/robertlighthizer), or his 2023 book, “[No Trade is Free](https://www.harpercollins.com/products/no-trade-is-free-robert-lighthizer?variant=41004612943906).” 

Authors

[ ![Elijah Asdourian](https://www.brookings.edu/wp-content/uploads/2022/08/Eli-Asdourian.png?quality=75&w=177) ]()

Elijah Asdourian Former Senior Research Assistant  \- [Economic Studies](https://www.brookings.edu/programs/economic-studies/), [The Hutchins Center on Fiscal and Monetary Policy](https://www.brookings.edu/centers/the-hutchins-center-on-fiscal-and-monetary-policy/)

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[ David Wessel ](https://www.brookings.edu/people/david-wessel/) Director  \- [The Hutchins Center on Fiscal and Monetary Policy](https://www.brookings.edu/centers/the-hutchins-center-on-fiscal-and-monetary-policy/), Senior Fellow  \- [Economic Studies](https://www.brookings.edu/programs/economic-studies/) [ @davidmwessel  ](https://twitter.com/davidmwessel)

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url: http://arxiv.org/abs/2309.02271v1
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[2309.02271v1] Dual Effects of the US-China Trade War and COVID-19 on United States Imports: Transfer of China's industrial chain?

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# Economics > General Economics

**arXiv:2309.02271v1** (econ) 

COVID-19 e-print

_Important:_ e-prints posted on arXiv are not peer-reviewed by arXiv; they should not be relied upon without context to guide clinical practice or health-related behavior and should not be reported in news media as established information without consulting multiple experts in the field.

[Submitted on 5 Sep 2023]

# Title:Dual Effects of the US-China Trade War and COVID-19 on United States Imports: Transfer of China's industrial chain?

Authors:[Wei Luo](https://arxiv.org/search/econ?searchtype=author&query=Luo,+W), [Siyuan Kang](https://arxiv.org/search/econ?searchtype=author&query=Kang,+S), [Sheng Hu](https://arxiv.org/search/econ?searchtype=author&query=Hu,+S), [Lixian Su](https://arxiv.org/search/econ?searchtype=author&query=Su,+L), [Rui Dai](https://arxiv.org/search/econ?searchtype=author&query=Dai,+R)

View a PDF of the paper titled Dual Effects of the US-China Trade War and COVID-19 on United States Imports: Transfer of China's industrial chain?, by Wei Luo and Siyuan Kang and Sheng Hu and Lixian Su and Rui Dai

[View PDF](/pdf/2309.02271v1)

> Abstract:The trade tension between the U.S. and China since 2018 has caused a steady decoupling of the world's two largest economies. The pandemic outbreak in 2020 complicated this process and had numerous unanticipated repercussions. This paper investigates how U.S. importers reacted to the trade war and worldwide lockdowns due to the COVID-19 pandemic. We examine the effects of the two incidents on U.S. imports separately and collectively, with various economic scopes. Our findings uncover intricate trading dynamics among the U.S., China, and Southeast Asia, through which businesses relocated portions of their global supply chain away from China to avoid high tariffs. Our analysis indicates that increased tariffs cause the U.S. to import less from China. Meanwhile, Southeast Asian exporters have integrated more into value chains centered on Chinese suppliers by participating more in assembling and completing products. However, the worldwide lockdowns over pandemic have reversed this trend as, over this period, the U.S. effectively imported more goods directly from China and indirectly through Southeast Asian exporters that imported from China. 

Comments: | 30 pages, 6 figures  
---|---  
Subjects: |  General Economics (econ.GN)  
Cite as: | [arXiv:2309.02271](https://arxiv.org/abs/2309.02271) [econ.GN]  
  | (or  [arXiv:2309.02271v1](https://arxiv.org/abs/2309.02271v1) [econ.GN] for this version)   
  |  <https://doi.org/10.48550/arXiv.2309.02271> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Siyuan Kang [[view email](/show-email/9811047d/2309.02271)]   
**[v1]** Tue, 5 Sep 2023 14:37:14 UTC (2,058 KB)  


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url: http://arxiv.org/abs/2012.08355v1
title: [2012.08355v1] A mathematical model of national-level food system sustainability
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# Economics > General Economics

**arXiv:2012.08355v1** (econ) 

[Submitted on 14 Dec 2020]

# Title:A mathematical model of national-level food system sustainability

Authors:[Conor Goold](https://arxiv.org/search/econ?searchtype=author&query=Goold,+C), [Simone Pfuderer](https://arxiv.org/search/econ?searchtype=author&query=Pfuderer,+S), [William H. M. James](https://arxiv.org/search/econ?searchtype=author&query=James,+W+H+M), [Nik Lomax](https://arxiv.org/search/econ?searchtype=author&query=Lomax,+N), [Fiona Smith](https://arxiv.org/search/econ?searchtype=author&query=Smith,+F), [Lisa M. Collins](https://arxiv.org/search/econ?searchtype=author&query=Collins,+L+M)

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> Abstract:The global food system faces various endogeneous and exogeneous, biotic and abiotic risk factors, including a rising human population, higher population densities, price volatility and climate change. Quantitative models play an important role in understanding food systems' expected responses to shocks and stresses. Here, we present a stylised mathematical model of a national-level food system that incorporates domestic supply of a food commodity, international trade, consumer demand, and food commodity price. We derive a critical compound parameter signalling when domestic supply will become unsustainable and the food system entirely dependent on imports, which results in higher commodity prices, lower consumer demand and lower inventory levels. Using Bayesian estimation, we apply the dynamic food systems model to infer the sustainability of the UK pork industry. We find that the UK pork industry is currently sustainable but because the industry is dependent on imports to meet demand, a decrease in self-sufficiency below 50% (current levels are 60-65%) would lead it close to the critical boundary signalling its collapse. Our model provides a theoretical foundation for future work to determine more complex causal drivers of food system vulnerability. 

Subjects: |  General Economics (econ.GN); Physics and Society (physics.soc-ph)  
---|---  
Cite as: | [arXiv:2012.08355](https://arxiv.org/abs/2012.08355) [econ.GN]  
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**[v1]** Mon, 14 Dec 2020 16:06:35 UTC (4,634 KB)  


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url: http://arxiv.org/abs/2201.04944v1
title: [2201.04944v1] Peer-to-Peer Energy Trading in a Microgrid Leveraged by Smart Contracts
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# Computer Science > Multiagent Systems

**arXiv:2201.04944v1** (cs) 

[Submitted on 7 Dec 2021]

# Title:Peer-to-Peer Energy Trading in a Microgrid Leveraged by Smart Contracts

Authors:[Guilherme Vieira](https://arxiv.org/search/cs?searchtype=author&query=Vieira,+G), [Jie Zhang](https://arxiv.org/search/cs?searchtype=author&query=Zhang,+J)

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> Abstract:The current electricity networks were not initially designed for the high integration of variable generation technologies. They suffer significant losses due to the combustion of fossil fuels, the long-distance transmission, and distribution of the power to the network. Recently, \emph{prosumers}, both consumers and producers, emerge with the increasing affordability to invest in domestic solar systems. Prosumers may trade within their communities to better manage their demand and supply as well as providing social and economic benefits. In this paper, we explore the use of Blockchain technologies and auction mechanisms to facilitate autonomous peer-to-peer energy trading within microgrids. We design two frameworks that utilize the smart contract functionality in Ethereum and employ the continuous double auction and uniform-price double-sided auction mechanisms, respectively. We validate our design by conducting A/B tests to compare the performance of different frameworks on a real-world dataset. The key characteristics of the two frameworks and several cost analyses are presented for comparison. Our results demonstrate that a P2P trading platform that integrates the blockchain technologies and agent-based systems is promising to complement the current centralized energy grid. We also identify a number of limitations, alternative solutions, and directions for future work. 

Comments: | 16 pages, 6 figures  
---|---  
Subjects: |  Multiagent Systems (cs.MA); Computer Science and Game Theory (cs.GT)  
Cite as: | [arXiv:2201.04944](https://arxiv.org/abs/2201.04944) [cs.MA]  
  | (or  [arXiv:2201.04944v1](https://arxiv.org/abs/2201.04944v1) [cs.MA] for this version)   
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## Submission history

From: Jie Zhang [[view email](/show-email/9caf0cfe/2201.04944)]   
**[v1]** Tue, 7 Dec 2021 00:25:00 UTC (3,837 KB)  


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title: Tariffs—Everything you need to know but were afraid to ask | Economic Policy Institute
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[Fact Sheet](https://www.epi.org/types/fact-sheet/) | [Industrial policy](https://www.epi.org/research/industrial-policy/)

#  Tariffs—Everything you need to know but were afraid to ask 

[Fact Sheet](https://www.epi.org/types/fact-sheet/) • By [Adam S. Hersh](https://www.epi.org/people/adam-s-hersh/) and [Josh Bivens](https://www.epi.org/people/josh-bivens/) • February 10, 2025 

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During his presidential campaign, President Trump pledged to impose [universal tariffs of 10–60%](https://www.reuters.com/markets/us/trump-aides-target-critical-areas-import-duties-washington-post-reports-2025-01-06/) on [all U.S. imports](https://fred.stlouisfed.org/series/IMPGS)—a whopping $4.2 trillion in goods and services purchased from abroad in 2024. This was always a real possibility. The [International Economic Emergency Powers Act](https://crsreports.congress.gov/product/pdf/r/r45618) gives the president broad authority to do so. In early February the Trump administration seemed to be making good on the threat to enact extremely high and broad-based tariffs. They announced tariffs of 25% on all goods from Mexico and all goods (except energy goods) from Canada, as well as tariffs of 10% on all goods from China, though ultimately punting on action against our neighbors for one month. These three countries combined account for over 40% of goods imports to the United States. Tariffs this high and applied to such a broad scope of U.S. imports would have constituted a highly significant change in economic policy. Almost immediately, the Mexican and Canadian tariffs were suspended for a month. Yet, all this highlights that historically large and broad-based tariffs remain a very possible policy outcome in the coming years. This FAQ provides information on the likely effects of these tariffs and, crucially, the effects that will not occur due to these tariffs.

## **Can tariffs ever be effectively used to target smart policymaking goals?**

**In brief:** Yes. Tariffs can do a number of useful things. Three broad uses include: 

  * providing effective protection for domestic production in specific economic sectors 
  * shielding U.S. workers from unfair forms of competition from specific trading partners (like those with abusive labor rights regimes)
  * complementing a country's strong domestic climate policy when trading partners’ policies are not as strong



Because tariffs are most effective when they focus on well-defined and narrowly tailored goals, they work best as part of a larger strategy.

**In detail:** The most direct benefit of tariffs is protection for domestic sectors in the U.S. economy that warrant strategic support. For example, some sectors are harmed when our trading partners take actions to support their own domestic exporters or undercut labor and clean air and water standards, or are critical for economic or national security. As a recent example, U.S. steel and aluminum producers have faced [chronic global oversupply](https://one.oecd.org/document/DSTI/SC\(2023\)10/FINAL/en/pdf) that has largely been caused by subsidies (direct and indirect) that trading partner governments have given their own domestic producers—[who are among the world’s worst polluters](https://www.belfercenter.org/sites/default/files/pantheon_files/files/publication/how-clean-is-the-us-steel-industry-nv.pdf).

As part of a strategic suite of complementary industrial policies, tariffs can help sustain and support the development of key industries and maintain them during periods when trading partners are engaged in market-distorting subsidization of their exports. Tariffs can help correct these pervasive distortions and improve economic efficiency, allowing firms to thrive in the face of these distortions.

Other reasons for wanting to target more domestic production from specific sectors include national security concerns, the underinvestment of private actors in the resilience of key nodes of supply chains, and combating monopolization of key inputs by another country—a lesson learned painfully during the COVID-19 pandemic when everyone was scrambling to source personal protective equipment (PPE), respirators, and critical medicines unavailable domestically at the necessary scale. Tariffs can help internalize the social costs of fragile global production chains otherwise created by profit-maximizing corporations. In short, tariffs are a valid, and often useful, industrial policy tool that can provide narrow and targeted protection for key sectors. 

Tariffs can also be used to shield U.S. workers from low-road practices (like labor abuses) among trading partners. For example, if tariffs were higher for countries that routinely failed to protect workers’ fundamental rights (or if tariffs were lowered when a country made a genuine commitment to protect these rights), the benefits of pursuing international competitiveness through wage suppression would be reduced.

Similarly, tariffs could also be useful in complementing high-road competition in environmental standards, for example by embedding the costs of greenhouse gas emissions (GHGs) from manufacturing and transportation in low-standard countries. This would incentivize clean air while also making sure U.S. workers in trade-exposed, energy-intensive industries do not bear the extra burden of adjusting to new climate policies. An approach that explicitly used tariffs to internalize the social costs of labor and environmental exploitation in low-standard countries would help correct these problems and provide transparent incentives for countries to pursue pro-worker and pro-environment policies.

These uses are not trivial: Tariffs are absolutely a key tool of smart industrial and trade policy. But on their own, tariffs cannot and should not be the centerpiece of a national economic strategy. Doing so would represent a gross overuse of a tool for a task it’s not suited for and would cause damage to the wider economy.

## **Can**  **high and broad-based tariffs fix the U.S. trade deficit or rebuild manufacturing employment?**

**In brief:** No, mostly because high and broad-based tariffs will also reduce exports along with imports, and this will leave the balance of trade mostly unchanged. Exports fall when tariffs are introduced for a number of reasons. The first is that many U.S. exports use imports as intermediate inputs to final goods produced in the United States. Making these inputs more expensive with tariffs will boost the price of these U.S. exports and make them less competitive in global markets. Second, trading partners are highly likely to retaliate to U.S. tariffs with tariffs of their own, making exports more expensive in international markets—which we’ve seen on “Made in America” goods from Boeing airplanes to Kentucky bourbon. And finally, tariffs will put upward pressure on the value of the U.S. dollar in global markets, which will make our exports more expensive and will increase the attractiveness of imports to U.S. customers—primary causes of U.S. trade deficits and manufacturing job losses.

**In detail:** It is true that [unbalanced trade has suppressed employment](https://www.epi.org/blog/brad-delong-too-lenient-on-trade-policy-economic-distress/) in manufacturing in the United States for decades. We consistently import far more manufactured goods than we export (and the difference is nowhere near made up in the services trade). This trade deficit drives a wedge between domestic consumption of manufactured goods and domestic production. Closing this trade deficit would, hence, substantially boost job opportunities in the manufacturing sector in the U.S. However, large and broad-based tariffs on all manufactured imports will not do much to close this deficit for several reasons.

First, many U.S. exports are produced using a large share of imported inputs. The slicing of global value chains in recent decades means that parts of a final good are often sourced from several different countries. Tariffs would, hence, make these inputs more expensive, and this would, in turn, push up the price of U.S. exports using these inputs, weakening the competitiveness of U.S. exports in global markets.

Second, and most obviously, tariffs are rarely unidirectional. When we impose tariffs, our trading partners are likely to retaliate with reciprocal tariffs on U.S. goods, pricing U.S. exporters out of international markets. This is not speculative—it absolutely was the result of the tariffs imposed during the first Trump administration.

American farmers and ranchers incurred the most widespread damage from this retaliation following the 2018 tariffs. The damage was so great that the Trump administration authorized [$61 billion in emergency relief payments](https://www.cfr.org/blog/92-percent-trumps-china-tariff-proceeds-has-gone-bail-out-angry-farmers) to cushion farmers and ranchers from the blow of this retaliation, an amount roughly equivalent to all of the tariff revenue collected from U.S. businesses. Big manufacturers like Boeing also lost access to international markets. Prior to 2018, China accounted for 25% of Boeing’s sales, but after the tariffs, [China stopped ordering Boeing aircraft](https://leehamnews.com/2024/12/06/how-trump-tariffs-affected-and-could-affect-airbus-boeing-and-embraer/) and created an opening for China’s homegrown COMAC C919—a direct competitor to Boeing’s 737 series planes. Not only will U.S. exporters lose markets abroad, but the lost exports will increase the supply of their goods to U.S. markets, putting downward pressure on the price of goods they sell domestically, reducing corporate profits.

Third, large and broad-based tariffs would put upward pressure on the value of the U.S. dollar, making U.S. exports more expensive to foreign buyers and imports cheaper and more attractive to U.S. businesses and consumers. This often happens as trading partners intentionally push down the value of their own currency against the dollar through exchange rate management policies to offset the competitive ground lost in U.S. markets to the new tariffs.

But it will also happen essentially mechanically. Countries use the dollars they earn from importing to the United States to purchase exports from the U.S. If tariffs reduce the dollars countries earn from importing to the U.S., this will either lead them to reduce what they purchase as U.S. exports, or they will need to purchase dollars on international capital markets in order to maintain their level of U.S. export purchases. This increased demand for dollars in these capital markets will push up demand for dollars, and the exchange rate will increase.

Again, this is not speculative—it [is exactly what happened in 2018](https://fred.stlouisfed.org/graph/?g=1CbQ8) in response to Trump’s first-term tariffs on Chinese technology goods and broader steel and aluminum imports, when China depreciated its currency by roughly 10% against the dollar. Against an international basket of currencies, [the dollar rose by about 7.5%](https://fred.stlouisfed.org/graph/?g=1CbQ8). Already since the November 2024 election, the value of China’s currency has fallen 1.1% against the dollar.

As a result of these influences, the U.S. trade deficit—how much we export minus how much we import—[saw no improvement](https://fred.stlouisfed.org/graph/?g=1DmAi) through the first Trump administration even as tariffs were increased. The tariffs did work to change the _composition_ of the trade deficit as [Chinese exporters sought to circumvent U.S. tariffs](https://www.nytimes.com/2024/12/31/business/economy/trump-tariffs-china.html) on Chinese goods by rerouting trade and [expanding investment in third countries](https://www.epi.org/publication/us-mexico-canada-agreement/)—in particular, [taking advantage of the U.S.-Mexico-Canada trade agreement negotiated by President Trump](https://www.epi.org/publication/testimony-prepared-for-the-u-s-international-trade-commission-report-on-the-usmca-automotive-rules-of-origin/) to use Mexico as a platform to export to U.S. markets. Since the 2018 tariffs took effect, imports from Mexico have increased 63%, and the U.S. trade deficit with Mexico increased by 159%.

Reducing damaging trade deficits cannot be achieved solely through trade policy—except in the extreme case where trade policy measures are so severe that they essentially shut down all international trade, which would cause radical disruption to the U.S. economy. Instead, more balanced trade will only result from macroeconomic policies that are consistent with lower trade deficits—including exchange rate management to [realign an overvalued U.S. dollar](https://www.wita.org/wp-content/uploads/2020/12/pb20-15.pdf) and a [reasonable mix of fiscal and monetary policies](https://www.piie.com/publications/working-papers/fiscal-and-exchange-rate-policies-drive-trade-imbalances-new-estimates).

## **Are tariffs the same as an industrial policy for the United States?**

**In brief:** No, tariffs are only one tool in the industrial policy toolkit, and they need supporting policies in strategic endeavors to effectively boost domestic sectors.

**In detail:** Tariffs, on their own, are an incomplete industrial policy strategy, even for the narrow goal of supporting a strategic domestic sector. New research confirms the [efficacy](https://www.imf.org/en/Publications/WP/Issues/2019/03/26/The-Return-of-the-Policy-That-Shall-Not-Be-Named-Principles-of-Industrial-Policy-46710) and [pervasiveness](https://www.oecd.org/en/publications/quantifying-industrial-strategies-across-nine-oecd-countries_5f2dcc8e-en.html) of industrial policies when applied strategically. While these policies can take a variety of forms, [all successful industrial policies do three main things](https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/annurev-economics-081023-024638.pdf), mostly aimed at addressing key market failures:

  * promote positive economic spillovers that provide economic benefits beyond the targeted industry—such as by creating innovation that benefits other industries or by supplying complementary goods or services that make other investments viable—and limit or abate negative economic spillovers that impose costs on other industries, consumers, or the public. For example, industrial policy to intentionally spread out the production of key inputs like semiconductors so that bottlenecks specific to a single country don’t choke global supply chains in the future creates the positive externality of resilience—left to their own private profit-making devices, individual companies will not have the incentive to make these investments.
  * provide complementary and industry-specific public inputs. Key examples include infrastructure, research and development, and workforce development investments that complement and crowd-in private investment.
  * provide coordination of disparate actors where complementary and collective actions are needed for an industry’s success, but market mechanisms are incapable of playing this role. One example of this is publicly provided monitoring of potential supply-chain stresses to keep private actors informed of how they can plan deliveries and marshal inputs to solve blockages before they happen. Industrial policy can also provide market-creating guarantees to crowd investment into cutting-edge technologies that individual investors might consider too risky to support, such as the [COVID-19 vaccine development](https://www.nber.org/papers/w30192). 



Tariffs can be part of this formulation when there is a compelling public interest to support a particular industry. But they are insufficient on their own to ensure that industries critical to U.S. economic and national security—from primary metals, to critical medicines and health equipment, to semiconductors and other advanced technologies—can overcome market failures and unfair competition.

Tariffs change the price signals in markets from which investors decide to shift resources between different sectors. But price signals alone are often not sufficient to ensure key market failures are overcome. But there are many market failures _besides_ getting prices wrong that domestic capital owners and workers need to overcome in order to be willing to invest in producing in tradeable goods sectors.

At the technology frontier, by definition, no one knows the likelihood of success in achieving technological advances or what the market potential is for such innovation—although technological progress is highly desirable, the potential risks and rewards cannot be accurately priced. Another example is where complementary investments are needed to make an individual investment financially viable, such as the need to upgrade electrical grids and build charging infrastructure for investments in electric vehicle manufacturing to be viable. Further, because it’s easy to change tariffs on short notice, capital owners and workers are unlikely to see tariffs alone as a sufficient signal that they should make costly, long-term investments in the production of tradeable goods.

## **Who ‘pays for’ tariffs imposed on U.S. imports?**

**In brief:** American households will bear most of the burden of higher tariffs. This will mostly come through higher prices for imported goods and, crucially, higher prices for domestic goods that compete with imports.

**In detail:** Tariffs are a tax on imported foreign goods and services. The legal incidence of these taxes falls on the U.S. company doing the importing. If a company imports $100 worth of goods and tariffs are 20%, the company must pay a tax of $20 to the federal government. However, one of the useful insights of economics is that the legal incidence of a tax and the economic incidence are different. Taxes set off a cascade of adjustments that can spread or concentrate their ultimate economic burden. In the case of tariffs, these adjustments essentially lead to U.S. households paying higher prices. Importers who pay the tax initially will typically raise prices to pass this additional cost along to consumers, known as “price pass-through.” The precise degree of pass-through will differ by good and sector: It is driven largely by factors such as the degree of a company’s market power and consumer sensitivity to price changes. But substantial [research](https://cepr.org/voxeu/columns/who-pays-tariffs-and-why-asymmetric-tariff-pass-through-between-china-and-us) [convincingly](https://www.federalreserve.gov/econres/feds/files/2019086pap.pdf) [demonstrates](https://www.nber.org/system/files/working_papers/w29315/w29315.pdf) that it is U.S. households who ultimately pay for tariffs.

It is important to note that if tariffs do not raise prices in the U.S. market, they will not shift consumer preferences to domestic goods from foreign goods, thereby failing to provide any useful protection to domestic industries. And if they are not providing effective protection to domestic producers, it is hard to see the point of imposing them. Tariffs provide effective protection to domestic producers by raising U.S. prices of foreign goods and services relative to similar domestically produced goods and services. This enables companies producing import-competing goods in the United States to raise prices, too, without fear of losing market share to lower-priced foreign competition. These higher prices enable domestic firms to maintain or expand production at a viable scale.

Because the tariff on a competing foreign good does not change a U.S. company’s production costs, in the short-run, the higher prices U.S. consumers pay for import-competing goods go directly into higher profits for the company. In the longer-run, and with complementary supporting policies, some of those profits might be redirected to investment and wages as the import-competing sector looks to expand its output.

What’s more, for goods that the United States does not or cannot produce domestically at adequate levels to meet demand, tariffs raise prices for U.S. consumers and businesses without giving a boost to domestic industries. This includes a wide range of agricultural goods (e.g., coffee, avocados, and bananas) and commodities and minerals that are relatively scarce in U.S. territory. Tariffs on imports that do not compete with “Made in America” goods simply raise prices for U.S. consumers without spurring domestic production of these goods. They represent a pure cost to U.S. consumers without any countervailing benefit.

## **Should policymakers try to make tariffs a significant revenue source for government spending?**

**In brief:** No. Tariffs are essentially a tax on consumption and are, hence, more regressive than most current federal revenue sources. This means that with tariffs, people with lower incomes will pay a larger share of their earnings in taxes than high-income people. For the significant amount of revenue we need to raise in the coming years, we should build on the existing progressive revenue sources we have (income and estate taxes) and institute new progressive taxes.

**In detail:** President Trump has suggested that tax revenues from new tariffs could [replace the federal income tax](https://www.cnn.com/2024/10/26/politics/trump-income-taxes-tariffs/index.html). This would require tariffs to reach historically high and broad levels and would constitute a large, regressive shift in who finances the federal government. In this scenario, the tax burden would shift from higher-income households to low- and moderate-income households. Large, across-the-board tariffs of this magnitude would also have many negative economic side effects relative to income taxes.

In 2024, the federal government will collect an estimated $2.5 trillion in individual income tax revenues. To raise this much revenue, the base of any tariff would have to be extremely broad—effectively universal, falling on all imports. If one starts with the implausible assumption that a universal tariff would not change U.S. demand for imports, the tariff rate would need to be 78% to replace the individual income tax. More realistically, if tariffs deter Americans from importing goods, then these taxes on imports would need to be _significantly_ higher to replace income tax revenues. In fact, [most estimates](https://www.piie.com/blogs/realtime-economics/2024/can-trump-replace-income-taxes-tariffs) of how sensitive U.S. purchases of imports are to their prices indicate that tariffs _literally could not_ replace even half of the income tax.

Further, even if tariffs could somehow replace income tax revenue one for one, this would be an extremely damaging shift for most U.S. families who would end up paying a greater share of their incomes in taxes. Revenues from progressive income taxes are preferable to those from tariffs for a few reasons.

First, tariffs are a regressive tax, meaning people with lower incomes will pay a larger share of their earnings in taxes than high-income people. Tariffs are essentially a consumption tax, and consumption as a share of income tends to fall as incomes rise.

Second, progressive taxation achieves more than merely raising revenues to fund essential public services supplied by our government from those who are most able to pay—it also [creates incentives that shape economic behavior in socially productive directions](https://eml.berkeley.edu/~saez/piketty-saez-stantchevaAEJ14.pdf). The [runaway growth of incomes for top earners are driven by rent-seeking practices](https://www.epi.org/publication/pay-corporate-executives-financial-professionals/)—income gained from the exploitation of power that is unrelated to an individual’s contribution to overall economic growth. Progressive taxation disincentivizes such rent-seeking among those with power and instead allows incomes to be more broadly dispersed. This disincentive effect of the federal income tax has been greatly eroded since the 1980s as top marginal rates have fallen, but relative to a scenario with no income tax, it is significant and worth preserving.

Finally, tariffs lead to efficiency losses as the potential benefits of international specialization are lost. At tariff levels that have persisted for the past 70 years, these efficiency losses are quite small (and often very exaggerated by economic commentary). But at tariff levels needed to replace the federal income tax, these efficiency losses would be high. Progressive income taxes also have some distortionary effects that might reduce economic output, but they also have countervailing influences that might boost economic output and welfare. For example, by raising revenue from the rich and financing federal spending targeted toward low- and middle-income families, this progressive redistribution supports growth in economywide demand. Again, richer households save higher shares of their income, so, redistribution away from them boosts spending. Substituting tariffs for progressive taxation forgoes these economic benefits beyond tax revenues.

## **Are tariffs easier and more transparent to collect than other forms of taxes?**

**In brief:** No, tariffs involve multiple compliance costs, and across-the-board tariffs will offer many more chances for corrupt dealing than exist under current taxes.

**In detail:** In 2018, tariffs imposed under Sec. 301 and Sec. 232 authorities by the first Trump administration included a process whereby importers could petition for tariff exclusion. Essentially this provided a huge new tax loophole for politically connected large companies to exploit. In total, the Trump administration granted [more than 100,000 exclusions from the tariffs](https://www.epi.org/publication/why-global-steel-surpluses-warrant-u-s-section-232-import-measures/). Audits by the [U.S. Government Accountability Office](https://www.gao.gov/assets/gao-21-506.pdf) and the [Department of Commerce’s Inspector General](https://www.oig.doc.gov/OIGPublications/OIG-21-020-A.pdf) found the exclusion petition processes were plagued by a lack of transparency, followed capricious and inconsistent internal procedures, and issued contradictory and seemingly arbitrary decisions.

New empirical research indeed confirms that [tariff exclusions have been used systematically to reward political contributions](https://jfqa.org/wp-content/uploads/2024/08/23440-Tariff-Exemptions.pdf), as well as to punish political opponents, rather than to accommodate economic need. In one instance in 2019, [Apple lobbied President Trump to secure exemptions for iPhone](https://www.wsj.com/politics/elections/tim-cook-ceo-trump-relationship-ad106f36) imports from China and pledged to repatriate some Mac computer manufacturing from China to the United States, though they never delivered on this promise. The scope of companies that will be incentivized to apply for exclusions (and potentially offer improper favors in exchange for them) and the financial benefit of avoiding tariff charges will grow enormously if the Trump tariffs that were promised during the campaign actually come to pass.

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Tariffs are taxes on imported goods that have played a role in U.S. history since the nation’s founding as an income source and tool for international policy. (Illustration by John DiJulio, University Communications)

# Q&A: What Are Tariffs and How Will They Affect Us?

04 February 2025

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**By Bryan McKenzie**

  


Negotiations between leaders in Mexico, Canada and the U.S. on Monday put a 30-day pause on President Donald Trump’s promised tariffs that would increase U.S. taxes on goods from Mexico and Canada each by 25%.

The Trump administration on Monday said it would delay the tariffs against those countries after leaders agreed to bolster cooperation along their borders with the U.S. A 10% tariff on goods from China is scheduled to take effect 12:01 a.m. Tuesday.

According to the White House, the tariffs are in response to “the extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl” that created a national emergency under the International Emergency Economic Powers Act.

Tariffs have long been both a revenue source for the U.S. and a tool for shaping international relations, but they may also have consequences for the national economy and cost-conscious consumers.

UVA Today talked with Rodney Sullivan, executive director of the Mayo Center of Asset Management at the University of Virginia’s Darden School of Business, to find out more about the tariffs and how they may affect Americans.

![Headshot of Rodney Sullivan](https://news.darden.virginia.edu/wp-content/uploads/2024/08/Darden-RodneyJune2024JLooney-0006-200x300.jpg)

Rodney Sullivan, Executive Director for the Mayo Center of Asset Management

### Q. What is a tariff and how does it differ from a tax?

A. A tariff is a levy or duty that a government imposes on imported goods. When a product crosses a country’s border, the government charges this fee before the product can enter the domestic economy. A tariff is essentially a type of tax on imported goods when they are brought into the country from abroad.

A tariff is different from other taxes like sales, income and property taxes. Tariffs directly affect the price of imported goods, which can lead to higher consumer prices and can alter trade dynamics and international relations. They are also used to indirectly protect domestic industries by making foreign products less competitive. So, in addition to being a source of revenue, they can protect domestic industries, counteract unfair trade practices and act as leverage in negotiations.

### Q. How have tariffs traditionally been used in the U.S.?

A. Early in U.S. history, tariffs were a major source of federal revenue. However, with the introduction of more effective revenue mechanisms like the federal income tax (especially after its establishment with the 16th Amendment in 1913), the reliance on tariffs for funding decreased.

Following the Great Depression, the approach to tariffs changed and they became more of a tool to influence economic policy. More specifically, U.S. tariff policy shifted from a focus on revenue sources to a tool for trade policy, such as addressing perceived unfair trade practices, instruments in trade negotiations, protecting industries and safeguarding national interests.

### Q. How do U.S.-levied tariffs affect the nation’s economy?

A. Tariffs, whether imposed by the U.S. or by foreign governments, can impact a domestic economy in various important ways, both directly and indirectly, affecting consumers, businesses and overall economic activity. Among the most common effects are higher consumer prices. Prices rise because some portion of the additional cost imposed by a tariff is typically passed on to consumers. This means higher prices for consumers for everyday goods.

Also, many companies rely on imported components and raw materials as inputs for their products. Tariffs on these inputs can raise production costs, which may then be passed on to consumers. One example is the U.S. auto industry, which relies heavily on Canadian car parts in the automobile manufacturing process.

Another important implication is that tariffs imposed by one country may lead to retaliatory tariffs or other measures by trading partners, raising the possibility of a trade war. This would in turn harm global economic growth and lead to job losses.

### Q. How do the new tariffs compare to previous tariffs?

A. The new set of tariffs announced by the Trump administration represents a significant escalation in U.S. trade policy compared to previous measures. They are very broad in scope, imposing a 25% duty on all imports from Mexico and Canada, except for Canadian energy products, which will face a 10% tariff. A 10% tariff was also slapped on all imports from China aimed at a vast array of products. They are part of a strategy to address perceived unfair trade practices and concerns over intellectual property theft and trade imbalances.

### Q. What should we expect to happen?

A. These developments are bound to weigh on U.S. economic growth unless trade negotiations between these three trading partners move quickly to reverse the tariffs. Trade is not a large portion of U.S. nominal gross domestic product, but is interconnected with intermediate prices, labor costs and the revenues of domestic producers.

Should the tariffs not be reversed in short order, the likely impact will be weakened economic growth for the U.S. and its trade partners, eliminated jobs and increased consumer costs. The largest potential impacts will be in the agriculture, automotive and energy sectors.

Lastly, retaliatory measures from Canada, Mexico and China are expected, as seen during previous trade disputes. This could further disrupt supply chains and global trade flows, thus harming economic growth further.

The comprehensive nature of these tariffs risks igniting broader trade conflicts, potentially destabilizing international markets.

This article originally appeared in [UVA Today.](https://news.virginia.edu/content/qa-what-are-tariffs-and-how-will-they-affect-us?utm_source=DailyReport&utm_medium=email&utm_campaign=news)

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url: http://arxiv.org/abs/2409.06554v2
title: [2409.06554v2] Modelling Global Trade with Optimal Transport
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# Mathematics > Optimization and Control

**arXiv:2409.06554v2** (math) 

[Submitted on 10 Sep 2024 ([v1](https://arxiv.org/abs/2409.06554v1)), last revised 21 Sep 2024 (this version, v2)]

# Title:Modelling Global Trade with Optimal Transport

Authors:[Thomas Gaskin](https://arxiv.org/search/math?searchtype=author&query=Gaskin,+T), [Marie-Therese Wolfram](https://arxiv.org/search/math?searchtype=author&query=Wolfram,+M), [Andrew Duncan](https://arxiv.org/search/math?searchtype=author&query=Duncan,+A), [Guven Demirel](https://arxiv.org/search/math?searchtype=author&query=Demirel,+G)

View a PDF of the paper titled Modelling Global Trade with Optimal Transport, by Thomas Gaskin and 3 other authors

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> Abstract:Global trade is shaped by a complex mix of factors beyond supply and demand, including tangible variables like transport costs and tariffs, as well as less quantifiable influences such as political and economic relations. Traditionally, economists model trade using gravity models, which rely on explicit covariates but often struggle to capture these subtler drivers of trade. In this work, we employ optimal transport and a deep neural network to learn a time-dependent cost function from data, without imposing a specific functional form. This approach consistently outperforms traditional gravity models in accuracy while providing natural uncertainty quantification. Applying our framework to global food and agricultural trade, we show that the global South suffered disproportionately from the war in Ukraine's impact on wheat markets. We also analyze the effects of free-trade agreements and trade disputes with China, as well as Brexit's impact on British trade with Europe, uncovering hidden patterns that trade volumes alone cannot reveal. 

Subjects: |  Optimization and Control (math.OC); Machine Learning (cs.LG); Machine Learning (stat.ML)  
---|---  
MSC classes: | 49Q22, 91B70, 90B06  
ACM classes: | J.4; G.3; I.2.6  
Cite as: | [arXiv:2409.06554](https://arxiv.org/abs/2409.06554) [math.OC]  
  | (or  [arXiv:2409.06554v2](https://arxiv.org/abs/2409.06554v2) [math.OC] for this version)   
  |  <https://doi.org/10.48550/arXiv.2409.06554> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Thomas Gaskin [[view email](/show-email/0bfacad3/2409.06554)]   
**[[v1]](/abs/2409.06554v1)** Tue, 10 Sep 2024 14:31:03 UTC (25,564 KB)  
**[v2]** Sat, 21 Sep 2024 20:57:31 UTC (25,534 KB)  


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url: http://arxiv.org/abs/2502.01640v1
scrape_date: 2025-02-28T17:41:58.038276
content_type: markdown
hash: 03ff0a4ae1becb1ca68b74945003f86f650916a7e75d4ce069bb771bb2f0b172
title:
[2502.01640v1] Study on the impact of trade policy uncertainty on the performance of enterprise ESG performance

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# Economics > General Economics

**arXiv:2502.01640v1** (econ) 

[Submitted on 17 Jan 2025]

# Title:Study on the impact of trade policy uncertainty on the performance of enterprise ESG performance

Authors:[Hanqin Chen](https://arxiv.org/search/econ?searchtype=author&query=Chen,+H), [Ye Lu](https://arxiv.org/search/econ?searchtype=author&query=Lu,+Y), [Huaqin Huang](https://arxiv.org/search/econ?searchtype=author&query=Huang,+H)

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> Abstract:Trade policy uncertainty has become a significant feature of today's global economy. While its impact on free trade is evident, its microeconomic effects remain open to debate. This study explores the influence of trade policy uncertainty on corporate ESG performance and its underlying mechanisms, using data from A-share listed companies in China from 2010 to 2020. The findings reveal that increased trade policy uncertainty significantly and robustly enhances corporate ESG performance. Heterogeneity analysis indicates that high-tech enterprises are better equipped to improve their ESG performance in response to trade policy uncertainty. Furthermore, strengthening internal controls and appointing CEOs with environmental backgrounds also help firms seize the opportunities arising from trade policy uncertainty. In terms of mechanisms, trade policy uncertainty intensifies industry competition, compelling firms to enhance their ESG performance to gain market share. Additionally, it stimulates green technological innovation, further optimizing ESG outcomes. Therefore, efforts should focus on improving the ESG standards system, establishing ESG incentive policies, increasing the transparency and predictability of trade policies, and promoting corporate green development to advance national sustainable development goals. 

Comments: | in Chinese language  
---|---  
Subjects: |  General Economics (econ.GN)  
Cite as: | [arXiv:2502.01640](https://arxiv.org/abs/2502.01640) [econ.GN]  
  | (or  [arXiv:2502.01640v1](https://arxiv.org/abs/2502.01640v1) [econ.GN] for this version)   
  |  <https://doi.org/10.48550/arXiv.2502.01640> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Hanqin Chen [[view email](/show-email/3fdc9a85/2502.01640)]   
**[v1]** Fri, 17 Jan 2025 06:43:44 UTC (908 KB)  


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url: http://arxiv.org/abs/2405.14717v1
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hash: 63a052aa987947b8c485fe84b8d21de8d70d60a99b3f22263e3310d39edbe506
title:
[2405.14717v1] The impact of temporal hydrogen regulation on hydrogen exporters and their domestic energy transition

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# Physics > Physics and Society

**arXiv:2405.14717v1** (physics) 

[Submitted on 23 May 2024]

# Title:The impact of temporal hydrogen regulation on hydrogen exporters and their domestic energy transition

Authors:[Leon Schumm](https://arxiv.org/search/physics?searchtype=author&query=Schumm,+L), [Hazem Abdel-Khalek](https://arxiv.org/search/physics?searchtype=author&query=Abdel-Khalek,+H), [Tom Brown](https://arxiv.org/search/physics?searchtype=author&query=Brown,+T), [Falko Ueckerdt](https://arxiv.org/search/physics?searchtype=author&query=Ueckerdt,+F), [Michael Sterner](https://arxiv.org/search/physics?searchtype=author&query=Sterner,+M), [Davide Fioriti](https://arxiv.org/search/physics?searchtype=author&query=Fioriti,+D), [Max Parzen](https://arxiv.org/search/physics?searchtype=author&query=Parzen,+M)

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> Abstract:As global demand for green hydrogen rises, potential hydrogen exporters move into the spotlight. However, the large-scale installation of on-grid hydrogen electrolysis for export can have profound impacts on domestic energy prices and energy-related emissions. Our investigation explores the interplay of hydrogen exports, domestic energy transition and temporal hydrogen regulation, employing a sector-coupled energy model in Morocco. We find substantial co-benets of domestic climate change mitigation and hydrogen exports, whereby exports can reduce domestic electricity prices while mitigation reduces hydrogen export prices. However, increasing hydrogen exports quickly in a system that is still dominated by fossil fuels can substantially raise domestic electricity prices, if green hydrogen production is not regulated. Surprisingly, temporal matching of hydrogen production lowers domestic electricity cost by up to 31% while the effect on exporters is minimal. This policy instrument can steer the welfare (re-)distribution between hydrogen exporting firms, hydrogen importers, and domestic electricity consumers and hereby increases acceptance among actors. 

Subjects: |  Physics and Society (physics.soc-ph)  
---|---  
Cite as: | [arXiv:2405.14717](https://arxiv.org/abs/2405.14717) [physics.soc-ph]  
  | (or  [arXiv:2405.14717v1](https://arxiv.org/abs/2405.14717v1) [physics.soc-ph] for this version)   
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## Submission history

From: Leon Schumm [[view email](/show-email/1952dea5/2405.14717)]   
**[v1]** Thu, 23 May 2024 15:48:24 UTC (2,268 KB)  


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#  Tariffs as a Major Revenue Source: Implications for Distribution and Growth 

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In the early days of our nation, tariffs, or taxes on imported goods, were a primary source of government revenue. Over time, however, as the nation’s economy and businesses matured, it became clear that it was both fairer for American households and better for businesses, many of whom increasingly imported inputs to aid their domestic production, to raise revenues through a progressive income tax rather than regressive tariffs. Tariffs remain an important and targeted tool, of course, to protect against unfair trade practices. But, as we show in this issue brief, to use them as a revenue source that would significantly or even wholly replace the income tax would increase inflation and invite deep economic distortions that benefit the wealthy and harm low- and middle-income Americans.

Tariffs have not provided a meaningful share of revenue for the US government since the early 1900s (see Figure 1a). Existing imports duties on goods raised $80 billion last year, about 2 percent of the [$4.44 trillion](https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0923.pdf) in total Federal tax revenue (Figure 1b).[1] By comparison, the individual income tax was responsible for 49 percent of total Federal tax revenue, and an additional 36 percent was raised via social insurance (payroll) taxes, which are closely tied to individual income. In other words: more than three-quarters of federal tax revenue is linked to individual wage and non-wage income.

![](/wp-content/uploads/2024/07/Picture1_f83ee7.png) ![](/wp-content/uploads/2024/07/Picture2_45215e.png)

It is mathematically unlikely that a broad tariff could ever replace the revenue raised by the individual income tax. For example, given the value of goods imports during FY2023 ($3.12 trillion), an across-the-board 70 percent tariff would be required to replace the equivalent revenue raised by the individual income tax under the overly simplistic assumption that consumers, producers, and our trading partners would have made no changes to their behavior in response to the tariffs. There are several reasons to believe, however, that this “static” exercise is a substantial revenue overestimate.

First and foremost, an across-the-board tariff is likely to spark retaliatory tariffs that reduce U.S. exports and subsequently induce transfers of collected duties to impacted U.S. businesses. For example, U.S. farmers facing retaliatory export tariffs during the 2018-2019 trade war received Federal subsidies that totaled [92 percent of the collected duties](https://www.cfr.org/blog/92-percent-trumps-china-tariff-proceeds-has-gone-bail-out-angry-farmers). Thus, even in the context of targeted tariffs impacting a relatively small fraction of overall imports, the Federal government ultimately collected only 8 percent of the tariff revenue. As the scope of this tariff increases, the scale of retaliatory tariffs and cost of offsetting subsidies for affected businesses is likely to increase. Moreover, consumption and production patterns are [likely to respond](https://www.federalreserve.gov/econres/notes/feds-notes/global-trade-patterns-in-the-wake-of-the-2018-2019-u-s-china-tariff-hikes-20240412.html) to avoid the expense of this tariff, further reducing expected revenue. As a result, across-the-board tariff rates would likely need to be much larger than 70 percent to raise tax revenue that is equivalent to the individual income tax.

Further, this type of across-the-board tariff is likely to negatively impact the US macroeconomy. To begin, these tariffs will raise the prices of imported consumption goods and imported inputs used to produce output that is sold both domestically and internationally. A recent study found that a broad implementation of tariffs would raise the inflation rate by about ¾ percentage point relative to the current baseline ([Zandi, Le Cerda, and Begley 2024](https://www.economy.com/economicview/analysis/405228/Assessing-the-Macroeconomic-Consequences-of-Biden-vs-Trump) and correspondence with author). [Clausing and Obstfeld 2024](https://www.piie.com/blogs/realtime-economics/2024/can-trump-replace-income-taxes-tariffs) concur that the inflation impact of an across-the-board tariff would be severe.

Crucially, the increase in imported input prices adversely impacts the efficiency of domestic production. Indeed, the [evidence](https://www.nber.org/papers/w25402) shows that large-scale tariffs result in significant declines in domestic output and productivity, higher unemployment, more inequality and real exchange rate appreciation implying a loss of international competitiveness, while having only small effects on the trade balance. Any increases in interest rates to combat transitory inflation due to rising prices will be contractionary, additionally contributing to a decline in real investment and output. These cumulative effects are likely to further depress the revenue raised by an across-the-board tariff.

Finally, relying on a tariff as a major source of tax revenue raises serious equity concerns. As noted, across-the-board tariffs would cause substantial pressure on consumer prices, either because consumers directly purchase imported goods or because businesses that rely on imported goods as inputs to their production increase prices. Because lower-income households spend a larger share of their income on consumption of these goods, they will be [disproportionately burdened](https://cepr.org/voxeu/columns/us-tariffs-are-arbitrary-and-regressive-tax) by a broad tariff.  For example, CEA estimates indicate that introducing a 10 percent across-the-board tariff would impose a tariff burden of 2.3 percent of income for those in the bottom quintile compared to just 0.5 percent for households in the top 1 percent, following the methodology employed by [Clausing and Lovely (2024)](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4834397) (Figure 2).

![](/wp-content/uploads/2024/07/Picture3_00d58a.png)

Strategically targeted tariffs are an important tool to protect economic and international interests of the U.S. However, the potential for a broad tariff to serve as a major revenue raiser in a modern, global economy is limited. Moreover, elevating the reliance of the Federal government on tariff revenue would likely exacerbate long-running trends in income inequality by shifting more of the burden of taxation onto lower-income households. It is also highly like to generate large, negative distortions to the macroeconomy.

* * *

[1] Imported services are [not](https://ustr.gov/issue-areas/services-investment/services) subject to tariffs.

[ Next CEA Post: Remarks by CEA Chair Jared Bernstein at the HUD Insurance Summit  ](/cea/written-materials/2024/07/18/remarks-by-cea-chair-jared-bernstein-at-the-hud-insurance-summit/) Remarks by CEA Chair Jared Bernstein at the HUD Insurance Summit 

July 18, 2024 • Speeches and Remarks

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url: http://arxiv.org/abs/2211.13117v1
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[2211.13117v1] On the Empirical Association between Trade Network Complexity and Global Gross Domestic Product

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# Economics > General Economics

**arXiv:2211.13117v1** (econ) 

[Submitted on 18 Nov 2022]

# Title:On the Empirical Association between Trade Network Complexity and Global Gross Domestic Product

Authors:[Mayank Kejriwal](https://arxiv.org/search/econ?searchtype=author&query=Kejriwal,+M), [Yuesheng Luo](https://arxiv.org/search/econ?searchtype=author&query=Luo,+Y)

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> Abstract:In recent decades, trade between nations has constituted an important component of global Gross Domestic Product (GDP), with official estimates showing that it likely accounted for a quarter of total global production. While evidence of association already exists in macro-economic data between trade volume and GDP growth, there is considerably less work on whether, at the level of individual granular sectors (such as vehicles or minerals), associations exist between the complexity of trading networks and global GDP. In this paper, we explore this question by using publicly available data from the Atlas of Economic Complexity project to rigorously construct global trade networks between nations across multiple sectors, and studying the correlation between network-theoretic measures computed on these networks (such as average clustering coefficient and density) and global GDP. We find that there is indeed significant association between trade networks' complexity and global GDP across almost every sector, and that network metrics also correlate with business cycle phenomena such as the Great Recession of 2007-2008. Our results show that trade volume alone cannot explain global GDP growth, and that network science may prove to be a valuable empirical avenue for studying complexity in macro-economic phenomena such as trade. 

Comments: | Peer-reviewed and presented at The 11th International Conference on Complex Networks and their Applications (2022)  
---|---  
Subjects: |  General Economics (econ.GN); Social and Information Networks (cs.SI)  
Cite as: | [arXiv:2211.13117](https://arxiv.org/abs/2211.13117) [econ.GN]  
  | (or  [arXiv:2211.13117v1](https://arxiv.org/abs/2211.13117v1) [econ.GN] for this version)   
  |  <https://doi.org/10.48550/arXiv.2211.13117> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Mayank Kejriwal [[view email](/show-email/eac001d9/2211.13117)]   
**[v1]** Fri, 18 Nov 2022 16:42:48 UTC (372 KB)  


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url: http://arxiv.org/abs/2104.05754v2
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[2104.05754v2] The role of relatedness and strategic linkages between domestic and MNE sectors in regional branching and resilience

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# Economics > General Economics

**arXiv:2104.05754v2** (econ) 

[Submitted on 12 Apr 2021 ([v1](https://arxiv.org/abs/2104.05754v1)), last revised 4 Aug 2021 (this version, v2)]

# Title:The role of relatedness and strategic linkages between domestic and MNE sectors in regional branching and resilience

Authors:[Mattie Landman](https://arxiv.org/search/econ?searchtype=author&query=Landman,+M), [Sanna Ojanperä](https://arxiv.org/search/econ?searchtype=author&query=Ojanper%C3%A4,+S), [Stephen Kinsella](https://arxiv.org/search/econ?searchtype=author&query=Kinsella,+S), [Neave O'Clery](https://arxiv.org/search/econ?searchtype=author&query=O'Clery,+N)

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> Abstract:Despite the key role of multinational enterprises (MNEs) in both international markets and domestic economies, there is no consensus on their impact on their host economy. In particular, do MNEs stimulate new domestic firms through knowledge spillovers? Here, we look at the impact of MNEs on the entry and exit of domestic industries in Irish regions before, during, and after the 2008 Financial Crisis. Specifically, we are interested in whether the presence of MNEs in a region results in knowledge spillovers and the creation of new domestic industries in related sectors. To quantify how related an industry is to a region's industry basket we propose two cohesion measures, weighted closeness and strategic closeness, which capture direct linkages and the complex connectivity structure between industries in a region respectively. We use a dataset of government-supported firms in Ireland (covering 90% of manufacturing and exporting) between 2006-2019. We find that domestic industries are both more likely to enter and less likely to leave a region if they are related to so-called 'overlapping' industries containing both domestic and MNE firms. In contrast, we find a negative impact on domestic entry and survival from cohesion to 'exclusive MNE' industries, suggesting that domestic firms are unable to 'leap' and thrive in MNE-proximate industries likely due to a technology or know-how gap. This dynamic was broken, with domestic firms entering MNE exclusive sectors, by a large injection of Brexit diversification funds in 2017-18. Finally, the type of cohesion matters. For example, strategic rather than weighted closeness to exclusive domestic sectors matters for both entries and exits. 

Subjects: |  General Economics (econ.GN)  
---|---  
Cite as: | [arXiv:2104.05754](https://arxiv.org/abs/2104.05754) [econ.GN]  
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## Submission history

From: Neave O'Clery Dr [[view email](/show-email/c6c4ae94/2104.05754)]   
**[[v1]](/abs/2104.05754v1)** Mon, 12 Apr 2021 18:32:34 UTC (2,467 KB)  
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#####  Revitalizing U.S. Trade Remedy Tools for an Era of Industrial Policy in an Interconnected World 

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ReportJune 3, 2024 Jun 3, 2024

# Revitalizing U.S. Trade Remedy Tools for an Era of Industrial Policy in an Interconnected World

To implement an effective industrial policy, the United States needs to update its trade enforcement toolkit to meet the challenges of the modern world and utilize its existing trade authorities differently.

  * [ Author ](./)



#### Author

  * [ __![](https://www.americanprogress.org/wp-content/uploads/sites/2/2023/10/Ryan-Mulholland.jpg?w=600) Ryan Mulholland ](https://www.americanprogress.org/people/ryan-mulholland/ "Ryan Mulholland")



[Building an Economy for All, ](https://www.americanprogress.org/issues/building-an-economy-for-all/ "Building an Economy for All")[China, ](https://www.americanprogress.org/topic/china/ "China")[Economic Development and Governance, ](https://www.americanprogress.org/topic/development-and-governance/ "Economic Development and Governance")[Economy, ](https://www.americanprogress.org/topic/economy/ "Economy")[International Issues, ](https://www.americanprogress.org/topic/international/ "International Issues")[Trade](https://www.americanprogress.org/topic/trade/ "Trade")+3 More

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__![Photo shows several long rows of colorful shipping containers against a smoggy blue sky](https://www.americanprogress.org/wp-content/uploads/sites/2/2024/05/GettyImages-1236603493.jpg?w=1680) Shipping containers are stacked up on Terminal Island in the Port of Long Beach in Long Beach, California, November 2021. (Getty/Jeff Gritchen/MediaNews Group/Orange County Register)

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## Introduction and summary

There is a saying in sports that baseball is a game built for radio, while football is a game built for TV. Baseball moves slowly enough that in between pitches, the announcer can describe the intricacies of the game: the weather, the pitcher’s glove, or the mannerisms of the hitter. Football moves faster and can be enjoyed with far less explanation. The United States’ trade enforcement toolkit is similarly built for radio. Its tools—largely tariffs—are outdated and in need of an update for a contemporary audience: in this case, a modern, globally connected economy.

This is not to suggest that trade enforcement, or tariffs more broadly, are bad—or even a net negative. When used effectively, the country’s trade enforcement authorities are a bulwark against job losses and an important tool for industries to use when facing illegal or subsidized import competition. Indeed, smart, targeted tariffs—whether or not used as a trade remedy—can play an important role in reorienting and derisking global supply chains, or even catalyzing broad industrial decarbonization.

But too often, tariffs or other trade enforcement actions fail to achieve their greatest possible impact, not because policymakers are stubborn or foolish, but because the tools themselves offer little in terms of precision, timeliness, or collaboration. In fact, the process of requesting trade enforcement support, the process of affording that support, and the impact of trade remedies when provided has so often failed to meet the needs of workers and companies, that broad frustration with the country’s existing trade remedy authorities is one issue that seems to unite boardrooms and union halls alike.

  * [Twitter](https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.americanprogress.org%2Farticle%2Frevitalizing-u-s-trade-remedy-tools-for-an-era-of-industrial-policy-in-an-interconnected-world%2F&text=If+the+Biden+administration%E2%80%99s+unprecedented+investments+in+American+industry+are+to+reach+their+full+transformational+potential%2C+then+a+reimagined+trade+enforcement+toolkit+is+critical.)



> "If the Biden administration’s unprecedented investments in American industry are to reach their full transformational potential, then a reimagined trade enforcement toolkit is critical."

Clearly an update is needed. And the timing is right too. If the Biden administration’s unprecedented investments in American industry are to reach their full transformational potential, then a reimagined trade enforcement toolkit is critical. Without it, potential benefits that could support the United States’ workers, its economy, and the economies of its partners and allies, as well as its vital interests and values, may go unrealized.

What is more, the out-of-date nature of the existing trade enforcement toolkit has placed the United States in a disadvantageous position vis-a-vis China and other authoritarian nonmarket economies, precisely at a time when global competition is increasing, and American businesses and workers are looking to the government for more effective support.

This report explores the challenges with the United States’ existing trade enforcement authorities, including their slowness, rigidity, and inability to coordinate with other industrial policy actions. The report then offers recommendations for modernization that would better enable the United States and its international partners to compete in an interconnected world defined by intense geo-economic competition, climate change, and supply chain integration. These include collecting duties on finished goods that include component parts subject to trade remedies; the development of a new authority to manage trade in critical sectors with nonmarket economies without the need to demonstrate injury; an option to provide alternative remedies to better serve the national interest or when traditional tariff protection is insufficient; and a new mechanism to tie tariff protection to commitments from industry to invest in long-term domestic competitiveness.

###  A new approach to industrial policy: Aligning investment with trade enforcement 

The Biden administration has made unprecedent investments in rebuilding the American industrial base, as well as record use of the country’s existing trade authorities. It has updated Section 301 tariffs on Chinese goods to be far more strategic and precise.1 It has reoriented steel and aluminum tariffs to better address overcapacity and promote industrial decarbonization.2 And it has implemented more antidumping and countervailing duties (AD/CVD) actions than any administration in history.3 The Biden administration deserves credit for coupling targeted trade remedy protection with significant new investments in domestic productivity. Manufacturing construction has increased dramatically as a result.4 The American manufacturing sector is expanding, modernizing, and growing more competitive by the day—creating a foundation of domestic industrial competitiveness that will pay dividends for years to come. But the impact could be even larger, if one side of the investment-and-protection equation—the trade remedy tools themselves—were better equipped to handle the dynamics of a modern economy defined by intense competition, digitalization, and deep supply chain integration.

The notion that trade enforcement should be considered alongside industrial strategy may be a jarring proposition to trade practitioners who cut their teeth in an earlier era of laissez-faire globalization. Traditionalists will suggest that trade enforcement, which is sanctioned by the World Trade Organization, should be used purely to correct market distortions caused by dumped or subsidized products in the U.S. market. It should not, they argue, be used as a tool for strengthening U.S. industrial competitiveness either at home or abroad.5

This is an outdated notion and a sentiment that has for too long ensured that enforcement actions remained only as strong as necessary to nurse an ailing sector back to some modicum of domestic stability—but certainly not strong enough to grow or outcompete foreign foes. It is also the embodiment of the neoliberal idea that price parity on its own is corrective of a market failure, that trade remedies are successful if a domestic industry can sell at a price point equal to that offered by subsidized imports. But this incomplete view of the market failure, and its correction, demonstrates a limited appreciation for how predatory imports injure an American industry and its workers. It does not account for whether domestic firms can compete successfully in markets outside the United States, where the vast majority of consumers live; whether the protection offered by trade remedies allows laid-off workers to be rehired or paid a fair wage; or whether damage to the social or economic fabric of communities that are home to firms affected by predatory import competition is adequately addressed.

And just as views on the so-called “Washington consensus”6 are being replaced by more affirmative approaches to industrial policy, so must policymakers consider better ways to implement trade remedies that go beyond antiquated notions of leveling the playing field.7 This will require both new trade policy authorities and a rethink of how existing authorities can be used to support the enduring competitiveness and well-being of the U.S. industrial base, as well as the supply chains and workers that power it.

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## The current trade enforcement toolkit

Any discussion of modernizing the United States’ trade enforcement toolkit must start with understanding the role of tariffs, given the centrality of tariffs to most trade enforcement actions. Not all tariffs support trade enforcement, and not all trade enforcement actions must involve tariffs—although most do. Tariffs have been used for centuries for different purposes. They can be used to help shield fledgling domestic producers from foreign competition—for example, what Alexander Hamilton called for in his famous “Report on the Subject of Manufactures.”8 Tariffs can also be used to compel a foreign government or foreign firm to change their ways, or they can be a source of revenue, as was historically the case in the United States.9 If a tariff is used to counteract the negative impact of subsidized or otherwise anti-competitive imports on U.S.-based producers, that action can be identified as “trade enforcement.”

###  What is a tariff? 

A tariff is a tax levied on a domestic business for importing a product from abroad. It is paid by U.S. importers as a tax when their purchased product crosses the U.S. border. Although tariffs are imposed on foreign goods, the economic burden usually falls on domestic consumers10 because the additional cost of importing the tariffed product is commonly passed on in the form of higher prices.

The most common form of import tariff is an “ad valorem” tariff levied on a set percentage of the value of an imported good. The United States, for example, currently maintains a trade-weighted average import tariff rate of 2 percent on industrial goods.11 Other tariffs can be “specific” and levied as a fixed amount. The Tariff Act of 1789, for example, levied a 50-cent tariff per ton on goods imported on foreign ships, regardless of the value of the shipment.12 It is also possible to consider assessing a tariff based on some other aspect of an imported good. A tariff based on the carbon content of an imported product, for example, has been implemented by the European Union and considered by the U.S. Congress and is also the basis of ongoing negotiations toward a global arrangement on sustainable steel and aluminum.13

In the United States, tariffs for the purposes of trade enforcement can be levied using several legal authorities. These include, among other authorities, Section 232 tariffs of the 1962 Trade Expansion Act, Section 201 and Section 301 of the 1974 Trade Act, and AD/CVD actions, which date to the 1930 Smoot-Hawley Act but were modified significantly by the Trade Agreements Act of 1979. Taken together, these authorities, with their different timelines, processes, and objectives, form the country’s trade enforcement toolkit.

Section 232 tariffs allow any federal department, agency head, or “interested party” to request that the U.S. Department of Commerce investigate the effects that specific imports have on U.S. national security; the Commerce Department may also self-initiate an investigation.14 This authority dates to the Trade Expansion Act of 1962 and allows the secretary of commerce, after consulting with the secretary of defense, other “appropriate officers of the United States,” and the public, if appropriate, to issue a report to the president advising on whether a specific product is being imported “in certain quantities or under such circumstances” to impair U.S. national security. If the Commerce Department determines that imports do impair U.S. national security, then the president, upon receipt of the report, has 90 days to 1) determine whether they concur with the Commerce Department’s findings, and 2) if so, determine the action, and the duration of the action, to be taken to address the national security threat.

Section 201 safeguards date to the 1974 Trade Act, which enables the president to provide temporary relief to a U.S. industry facing a surge of deleterious import competition by giving that industry time to make a “positive adjustment” that would enable it to compete more effectively in the future.15 Section 201 safeguards are enacted following an investigation by the U.S. International Trade Commission (USITC) into whether a particular industry is being seriously injured or threatened with serious injury, and, if so, whether an increase in imports is a “substantial cause” of that injury. If the USITC decides that an industry is being seriously injured or faces serious injury, then it makes recommendations to facilitate that industry’s positive adjustment to that competition. Recommendations may include the imposition of tariffs, a tariff-rate quota on the product, adjustment assistance, and/or trade negotiations to alleviate the injury or threat of injury.16 The president then must decide which, if any, of the USITC’s recommendations to implement. Import relief can last up to four years and be extended one or more times thereafter, but only up to a maximum of eight years.

Section 301 actions date to the same 1974 law and allow the administration to impose trade sanctions on foreign countries that violate U.S. trade agreements or engage in acts that are “unjustifiable” or “unreasonable” and burden U.S. commerce, defined to include goods, services, and investment.17 The U.S. trade representative (USTR) may initiate a Section 301 case after an investigation into the practices of a foreign government is requested by “any interested person” or after it “self-initiate[s]” its own investigation. A Section 301 committee is then formed to conduct public hearings, review evidence, and make recommendations regarding potential actions to remedy a foreign trade practice. Section 301 actions terminate automatically after four years, unless the USTR receives a request for continuation and conducts a review of the case.

AD/CVD is the most common trade enforcement action, the most current version of which dates to the Trade Agreements Act of 1979, but which first were introduced in an earlier version in the 1930 Tariff Act, commonly known as the Smoot-Hawley Act.18 They were designed to level the playing field for U.S. manufacturers by providing relief to industries that were “materially injured,” or threatened with injury, due to the sale of imported products at less than fair value, usually because the foreign producer benefits from subsidies from its home government.19 They were also designed to be “quasi-judicial” and removed from the fickle whims of political leadership. In most cases, AD/CVD actions begin following a petition to both the Commerce Department’s International Trade Administration (ITA) and the USITC, although it is possible for the ITA to self-initiate AD/CVD actions.

The ITA then assesses petitions, determines whether (and, if so, the amount of) dumping that has occurred, and if any illegal subsidies were provided to enable the dumping of product in the U.S. market. Concurrently, the USITC determines whether the U.S. industry in question has been “materially injured or is threatened with material injury.”20 If dumping has caused material injury, then the ITA determines the duty rate, usually assessed on a per-company basis, to offset the price difference between the imported good and a similar product produced in the United States.

A few additional tools are used less frequently but nonetheless are available to levy import tariffs in support of U.S. industry. Section 337 of the 1930 Tariff Act allows the USITC to investigate claims regarding intellectual property rights infringement, which can result in an exclusion order that directs U.S. Customs and Border Protection (CBP) officials to stop infringing imports from entering the United States.21 Section 338 of the same 1930 law allows the president to levy “new or additional duties” on imports from countries that have discriminated against U.S. commerce relative to the commerce of other countries.22

In 2019, the Trump administration also threatened to raise tariffs in an effort to compel the Mexican government to limit the flow of migrants from Central America to the United States, citing the authority offered the president by the International Emergency Economic Powers Act (IEEPA) of 1979.23 IEEPA provides the president broad authority to regulate a variety of economic transactions that involve a foreign entity following a declaration of national emergency, but it is typically used in instances of economic sanctions, rather than to impose tariffs.24

## Challenges with the existing trade enforcement toolkit

Each of these authorities dates to the 1960s or 1970s—and, despite modest updates through legislation and executive action, each has remained largely unchanged for nearly half a century. Herein lies the problem: The world has changed a lot since the presidencies of John F. Kennedy, Gerald Ford, and Jimmy Carter (the presidents who signed the authorities noted here into law), but the trade enforcement toolkit has not. This has placed American workers and American producers at a disadvantage, as the tools meant to protect them from the predatory trade practices of others have not kept pace with the modern economy.

  * [Twitter](https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.americanprogress.org%2Farticle%2Frevitalizing-u-s-trade-remedy-tools-for-an-era-of-industrial-policy-in-an-interconnected-world%2F&text=The+lack+of+more+modern+trade+enforcement+authorities+restricts+policymakers+to+waging+a+modern%2C+21st-century+great-power+economic+competition+with+the+equivalent+of+Vietnam-era+technology.)



> "The lack of more modern trade enforcement authorities restricts policymakers to waging a modern, 21st-century great-power economic competition with the equivalent of Vietnam-era technology."

Put simply, the lack of more modern trade enforcement authorities restricts policymakers to waging a modern, 21st-century great-power economic competition with the equivalent of Vietnam-era technology. And it hamstrings the government’s ability to safeguard the country’s vital interest, which unfettered globalization has put at risk. Sharper tools are needed to counter unfair trade practices in an era of both intense global competition and unprecedented global economic integration. This is particularly true in sectors where the United States, its partners, and its allies have a strategic interest in nurturing critical industries, avoiding harmful dependencies, and empowering workers. Several challenges, discussed below, deserve attention.

#### Trade enforcement tools move too slowly for the modern economy

An obvious problem with the existing toolkit is that it moves too slowly to meet the needs of highly innovative sectors such as semiconductors, artificial intelligence (AI), or software development—sectors that will likely drive the global economy forward in the decades ahead.

The slowness of the trade enforcement tools is a function of many factors, meaning the solution is nuanced and varied. The statutory procedures associated with the different trade enforcement authorities are cumbersome and lengthy, often taking several months to complete. But in some high-tech sectors, even a few months of damaging market losses can severely weaken a domestic industry—and a few years of sustained losses can lead to permanent destruction.

Across almost all industries today, manufacturing can be scaled quicker and products distributed faster than when the United States’ trade enforcement tools were created. The solar industry provides a useful example. Despite U.S. national labs inventing most of the solar technologies deployed around the world, the United States produces only about 2 percent of the world’s solar panels25—and that is with AD/CVD duties on Chinese-made solar panels in place since 2011 and Section 201 safeguards on solar imports since 2018.26

The reality is that China’s willingness to weaponize its productive capacity, and its overcapacity in key sectors, is aided by the fact that the United States’ trade tools are not equipped to respond fast enough to counter its aggressive actions.27 As a result, China has been able to use export subsidies and other nonmarket practices to take advantage of the mobility and openness of the global trading system to maintain and even grow its market dominance, particularly in sectors such as steel, solar power, and electric vehicles, where the Chinese government has a strategic interest in controlling global supply chains.28

And it has often done so despite the trade enforcement efforts of the United States, because in many instances, by the time the United States’ trade tools took effect, the damage was already done. Chinese firms had already gained significant market share, and, in some cases, U.S. producers (and producers in other market-based trading partners) were forced permanently out of the market. The delay in responding allowed China to reach economies of scale that U.S. producers simply could not compete with on level terms. Indeed, this strategy has been so successful for China that similar attempts by Chinese firms to capture market share in other strategic sectors will likely find similar success, unless the United States can effectively modernize its trade remedy tools.

In addition to the time associated with reviewing requests for trade remedy support, both AD/CVD and Section 201 actions primarily offer protection only when petitioners demonstrate damage or injury—which itself adds more time to the process. One could argue that this is the economic equivalent of making a patient bleed on the hospital floor before agreeing to help them. It is also deeply discordant with the modern economy. In most supply chains, purchasing contracts are frequently signed well in advance of delivery. As a result, by the time AD/CVD or Section 201 safeguards are adjudicated and take effect, supply chains have often hardened, making it difficult for domestic producers to regain lost market share and empowering import constituencies to cry foul about uncertainty and market disruptions.

#### Trade enforcement tools were created at a time when domestic alternatives existed

In 1979, when the modern version of AD/CVD authorities were established, the U.S. economy accounted for more than one-quarter of the world’s economy, and its manufacturers produced nearly seven times as much product as those in China.29 If the U.S. government responded to an AD/CVD petition with duties on imports, there were likely several domestic suppliers that both stood to benefit and could meet an increase in demand.

Today, the economic landscape is far different. U.S. manufacturers accounted for just 15 percent of global output in 2023.30 And, in many industries, there is a significant amount of concentration, with just a few remaining U.S. producers. A domestic manufacturer, for example, that competes only in the United States by selling to clients that have unique technology requirements is often unprepared, or even unable, to scale quickly enough to meet the demands of a broader market, even if a trade remedy action offers them that opportunity.

Building new factories or even a new production line is also expensive and typically requires financing, particularly for small- and medium-sized manufacturers. Scaling to meet expected demand increases thus requires a belief in the long-term viability of an industry or customer base—on behalf of both the manufacturer itself and the bank or financial institution that could finance its expansion. Yet the long-term viability of demand is called into question by the very need for AD/CVD protection.

Somewhat paradoxically, industry concentration has made this situation worse. If, for example, the new market opportunity created by trade remedy support were filled by 10 domestic suppliers, each company could roughly expect to capture 10 percent of the new demand. Much of this additional demand could likely be met by each firm increasing its utilization rate at its existing facilities. If, on the other hand, only one domestic company existed in the market, that company might expect to capture 100 percent of the new opportunity, although some of the market gap would likely be filled by imports from elsewhere.

This could be a potentially lucrative prospect for the company, but such a large increase in demand would almost certainly necessitate a much larger build-out of its productive capacity. In some cases, the firm might require financing to double or even triple its manufacturing capacity—a rate of growth that can be difficult for firms to achieve quickly. What is more, if this type of expansion requires a large loan, that usually comes with higher costs for the borrower (in this case, the manufacturer), which now must carry a heavier debt burden than may be advisable in a market defined by tariff uncertainty and predatory trade practices.

This suggests that if policymakers want domestic producers to scale up in order to both meet expected demand created by a trade enforcement action and fend off future competition from subsidized imports, then simply relying on traditional means of financing a firm’s expansion may be unwise. Instead, it may be necessary for the government to play a more active role in helping domestic producers faced with predatory import competition to scale, modernize, or both.

#### Trade enforcement does not align with industrial policy

One of the great frustrations for policymakers is that the existing trade enforcement toolkit operates roughly of its own volition rather than as a meaningful part of a larger strategy to build U.S. industrial competitiveness. Thus, coordination with industry that could have helped align trade enforcement support with the country’s strategic ambitions never happened.

In the solar industry, AD/CVD duties on Chinese solar panels would have been more effective if they were administered alongside a plan to retool, rebuild, and reenergize solar manufacturing in the United States. Instead, the lack of federal investment in the decade before the Inflation Reduction Act (IRA), and a market characterized by dramatically falling prices, meant that U.S. industry continued to lose market share, even with AD/CVD duties in place to protect them.31 The Biden administration’s investments through the IRA demonstrate that this sort of alignment is possible, but the passage of the IRA and the administration’s decisions on solar tariffs—through AD/CVD orders, Section 201 safeguards, and Section 301 tariffs—all occurred concurrently rather than as a cohesive national strategy.

This sort of industrial policy coupled with managed trade may seem radical to those schooled in the neoliberal tradition, but it is far from uncommon. As the Congressional Research Service recently wrote, “Few, if any, nations completely practice free trade.”32 Most intervene in their domestic market to varying degrees by providing subsidies to support manufacturing or by restricting imports. In fact, when competing against a long-term, strategic, nonmarket rival—as the United States is with China—a proactive strategy to build and maintain productive capacity at a level supportive of U.S. economic and national security will almost certainly require this sort of approach.

#### Trade enforcement is not designed to make U.S. production more competitive

As a corollary, trade enforcement is simply not designed to increase the competitiveness of U.S. manufacturing. It assumes, on the contrary, that U.S.-based producers require only a level playing field, as measured by price parity, to win in the domestic market.

This is because trade enforcement actions are not meant to fix structural problems that make U.S. manufacturers uncompetitive or vulnerable to import competition—subsidized or not. In fact, the revenue collected by CBP through various trade enforcement actions is deposited into the U.S. Treasury.33 It is not invested in a systematic or strategic way to increase the capacity of U.S. manufacturers, enhance productivity, or otherwise improve their ability to compete. None of it is used to retrain workers or provide a long-term comparative advantage that would enable U.S. producers to expand and grow into the future.34

  * [Twitter](https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.americanprogress.org%2Farticle%2Frevitalizing-u-s-trade-remedy-tools-for-an-era-of-industrial-policy-in-an-interconnected-world%2F&text=Trade+enforcement+actions+are+not+meant+to+fix+structural+problems+that+make+U.S.+manufacturers+uncompetitive+or+vulnerable+to+import+competition%E2%80%94subsidized+or+not.)



> "Trade enforcement actions are not meant to fix structural problems that make U.S. manufacturers uncompetitive or vulnerable to import competition—subsidized or not."

Too often, this means that industries in need of trade enforcement protection become addicted to it, unable to reorient themselves to compete going forward without the federal investment required to make future trade enforcement unnecessary. Trade remedy protection also does not require anything of the companies that request it: It does not require them to expand or modernize their factories, hire workers, pay a fair wage, train their employees, or do anything else that would place an industry in a more competitive position going forward.

#### Trade enforcement tools are not designed for integrated global supply chains

The trade enforcement tools available to the U.S. government today are constructed based on a simplistic bilateral view of trade; that is, a product made in one country is entirely of that country. This is absurd. Given the global market’s emphasis on comparative advantage and specialization, almost all traded products now contain parts or materials made in supply chains that include dozens of different countries.

The semiconductor industry provides a great example. There remains significant concern regarding China’s willingness to subsidize its legacy chip manufacturers and then flood the U.S. and other global markets with such low-cost chips that domestic production becomes nonviable.35 One solution would be for the United States to use its trade enforcement toolkit to place tariffs or duties on Chinese-made legacy chips. Several different authorities could be used for this purpose. China’s intent to dump legacy chips in the U.S. market is well-known (allowing AD/CVD duties); there would be a surge of import competition (suggesting potential Section 201 safeguards); and there is clearly a national security concern (allowing for potential Section 232 tariffs). But most legacy chips are imported not as chips themselves, but rather as a component part in a finished good.

Thus, the United States could not tariff legacy chips from China without needing to tariff all the electronic products that utilize legacy chips, many of which are produced in factories outside China and many of which support manufacturing in the United States. A similar situation exists in the electric vehicle industry, where there is growing concern that Chinese producers will build factories in Mexico and use United States-Mexico-Canada Agreement rules to import into the United States either tariff-free or with a small tariff,36 rather than face the much higher tariff rates announced as a result of the Biden administration’s Section 301 review.37

This highlights a further challenge: The existing trade enforcement toolkit is often unable to consider the impact of trade protection on downstream industries. The law prohibits officials reviewing AD/CVD petitions from even considering the impact on consumers or other downstream industries.38 And, when there are downstream impacts, the tools simply do not exist to lessen short-term economic disruptions or support an industry’s efforts to more speedily claw back lost market share.

Even if a single, small, or relatively uncompetitive U.S. manufacturer files an AD/CVD petition, and it is not opposed by 50 percent of the industry, the procedures outlined in the Commerce Department’s AD/CVD authorities are the same. If a foreign firm receives subsidies that allow it to sell into the U.S. market below fair market value, duties are applied to make imports from that country more expensive. This is the case regardless of whether the firm requesting trade enforcement protection can scale its production to meet higher domestic demand.

Certainly, supporting domestic industries in the face of predatory or subsidized imports, particularly when those practices have already resulted in calculable damages, often requires some short-term pain. But it is counterintuitive that the government cannot even consider how long it would take the firm requesting trade remedy protection to recapture lost market share—and what steps it could take to make the transition easier, faster, and less disruptive to consumers and the country’s broader industrial base.

A 2021 AD/CVD investigation into the dumping of chassis into the U.S. market by Chinese firm China International Marine Containers (CIMC) provides a good example. CIMC is the world’s largest chassis manufacturer. The Commerce Department’s investigation resulted in a duty rate of more than 220 percent: a 177.05 percent antidumping duty and a 44.32 percent countervailing duty.39 Yet the five American chassis manufacturers that requested AD/CVD protection admittedly were not ready to meet the dramatic increase in demand that could be expected from a drop-off in imports from CIMC.40 The result was a steep increase in chassis prices precisely at a time when supply chain bottlenecks were already raising prices for consumers across a range of other products. Could the tariffs have been announced but delayed, allowing industry the time necessary to scale its capacity? Could AD/CVD protection have been contingent on an investment plan from U.S. chassis manufacturers to ensure their ability to meet domestic demand once the tariffs were imposed? Could the U.S. government have provided seed funding to build out chassis production capacity to speed this transition?

#### AD/CVD has no national interest determination

The chassis case further demonstrates another challenge with the United States’ trade enforcement toolkit: Its most used trade enforcement authority, AD/CVD, lacks a national or public interest determination. It does not have to be this way. In Europe, policymakers can determine whether dumping has occurred, whether that dumping has caused damage to domestic manufacturers, and whether those damages justify tariff protections. In most cases, tariff protections are justified, but for certain goods, they might not be. In 2006, when Europe faced a flood of imports of cheap Chinese-made shoes, it was able to calibrate its trade enforcement measure in a far more targeted manner than the United States, determining that children’s shoes should be excluded from any tariff to ensure that their prices remain low.41

A mechanism that would acknowledge the negative impact of predatory imports on a domestic industry and yet still allow duty-free importation of those products would be controversial—and ripe for political manipulation. Yet there could be cases where a tariff-based remedy is not the right response, particularly in industries where predatory imports take advantage of an existing market failure rather than causing it. In this situation, a different, alternative remedy might be more desirable and could better serve the national interest ,while limiting negative downstream impacts on consumers and other industrial sectors.

#### Trade enforcement is based exclusively on price

The existing trade enforcement toolkit is designed entirely around the idea that price is the determining factor in consumers’ choice. This is often far too simplistic in today’s high-tech economy. It is increasingly the case that access to data is a driving force in differentiating one company’s product, and its capabilities, from another. In this situation, price parity may be irrelevant, as giving away the product for free in order to capture the valuable data on consumer behavior that comes with its use may be more profitable.42 Would raising the cost of a Chinese-made product to that of a domestic alternative be wise if such action still afforded the Chinese firm access to the data of millions of American consumers? And what if those data then allow for the product to learn faster and eventually enjoy capabilities that the U.S.-made product cannot match, as could be the case with AI-powered products of the future?

#### Trade enforcement does not promote U.S. values and cannot value inaction

Related to the idea that the U.S. government’s trade enforcement toolkit is based solely on price is the fact that it is too often unable to adequately account for—and address—­situations where important values are at stake. If a country lacks environmental regulations or has weak worker health and safety requirements, isn’t that a form of subsidy in that it allows for cheaper production? 43 If a country has lax climate targets or fails to push its manufacturers to decarbonize, that should be considered a subsidy to be addressed by U.S. AD/CVD action. The same is true about manufacturing destinations with lower wages, recognizing that prevailing wages in different markets are notoriously difficult to equate given differences in cost of living.

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> "If a country lacks environmental regulations or has weak worker health and safety requirements, isn’t that a form of subsidy in that it allows for cheaper production?"

The Commerce Department’s AD/CVD investigations are designed to uncover and value the subsidies offered by a foreign firm’s home government that allows it to dump product in the U.S. market. But what if the lack of something is providing the space for foreign producers to manufacture at a cost below what is possible in the United States?

During Jair Bolsonaro’s presidency in Brazil, for example, deforestation rates skyrocketed, as his administration greatly favored the interests of agribusiness over Indigenous rights and the environment. Cattle ranging accounted for 80 percent of this deforestation.44 Could the United States have used its existing trade enforcement toolkit to levy tariffs on Brazilian beef either through AD/CVD, since allowing cattle rangers to use this land may be viewed as a subsidy, or through Section 301 tariffs, designed to compel Brazil to stop clearing so many hectares of forest? Such actions may have had an important effect, given that Brazil is the world’s largest beef exporter and the United States its second-largest export destination.45

#### Trade enforcement is hard to align with others

The latter is a good example, too, of the challenge associated with aligning trade enforcement actions with other international partners, often limiting their impact. In the case of potential tariffs on Brazilian beef, tariff pressure would likely have only been effective if restrictions on Brazilian exports were coordinated closely with others—in this case, China, since it is by far the largest buyer of Brazilian beef.46 Chinese steel is another example. China has found willing buyers for its subsidized, and thus overly cheap, steel in Southeast Asia, the Middle East, and Africa—locations where U.S. steel producers have long stopped being competitive suppliers.47 To stop China from dumping its steel in the world market, the United States would need to coordinate trade enforcement actions with these markets, along with Korea, Japan, Europe, Canada, and other major consumers of steel.

  * [Twitter](https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.americanprogress.org%2Farticle%2Frevitalizing-u-s-trade-remedy-tools-for-an-era-of-industrial-policy-in-an-interconnected-world%2F&text=Sharper+tools+are+needed+to+counter+unfair+trade+practices+in+an+era+of+both+intense+global+competition+and+unprecedented+global+economic+integration.)



> "Sharper tools are needed to counter unfair trade practices in an era of both intense global competition and unprecedented global economic integration."

## Modernizing the trade enforcement toolkit

In recent years, some in Congress have sought to make tweaks to AD/CVD authorities.48 The bipartisan Leveling the Playing Field 2.0 Act, introduced by Sens. Sherrod Brown (D-OH) and Todd Young (R-IN)—an update to the Leveling the Playing Field Act that was passed into law in 201549—would, for example, establish the new concept of “successive investigations,” providing the Commerce Department an ability to address repeat offenders in a faster manner; it would also allow AD/CVD duties on entities that receive Chinese government subsidies but operate in a third-country market. In addition, the Commerce Department recently updated its regulations and procedures related to AD/CVD cases, codifying the idea that noncollection of fees, fines, and other penalties is subject to countervailable duties.50

The Leveling the Playing Field 2.0 Act and the recent Commerce Department rulemaking are both admirable, but other, more significant updates should be considered as well.

#### Options for Congress

##### Extend AD/CVD duties to products that include materials or component parts subject to existing AD/CVD orders

Given the world’s highly integrated supply chains, most imported products are not wholly manufactured in their market of embarkation; rather, most include materials or component parts produced in multiple places before final assembly and shipment to the United States. Congress should consider authorizing CBP officials to assess AD/CVD duties on finished goods that are known to include component parts subject to existing AD/CVD orders, regardless of whether the imported good is itself subject to a trade remedy action. This would ensure that shipments of finished goods are not vehicles for the duty-free import of products that would otherwise be subject to duties. It would also greatly enhance the value of AD/CVD actions for American manufacturers and their workers, particularly in upstream industries.

This calls to mind the 19th-century doctrine of “continuous voyage,” which justified the seizure of ships and their cargo destined for neutral ports if the cargo was thought to ultimately be destined for an enemy combatant.51 Today, however, instead of considering the final consumer of the shipment, CBP officials should consider the supply chain inputs that went into a product before shipment to the United States. Such a practice would, for instance, be helpful in addressing the potential for China to dump legacy semiconductors in the U.S. market through the export of cheap consumer goods. It would also ensure that actions taken to alleviate the import pressure from China’s steel and aluminum overcapacity would be more robust, as products using Chinese steel would be subject to the same AD/CVD actions as a shipment of steel directly from China.

Section 307 of the Tariff Act of 1930 already prohibits the importation of any product that was mined, produced, or manufactured wholly or in part using forced labor, meaning that CBP officials have experience parsing the supply chains of imported goods.52 The Commerce Department is likewise empowered to extend AD/CVD duties to imports deemed to have circumvented existing AD/CVD orders by transshipping through a third-country port—or by whether the product was deemed to have been only minimally modified before being shipped to the United States—indicating that the law already envisions some appreciation for how goods are moved in the global economy.53

Applying AD/CVD orders to finished goods that would otherwise enter the country duty-free, but which include inputs subject to AD/CVD orders would require the Commerce Department to help CBP officials target shipments through the sharing of supply chain expertise. Both the Commerce Department and the Department of Homeland Security have developed new supply chain offices and are quickly developing the level of expertise needed for such a task.54 But in both cases, additional funding from Congress would support this capability and ensure that targeting is accurate and strategic.

##### Expand Section 232 authorities to enable tariff protection for industries where imports pose an economic security concern

Section 232 authority allows the president to take action to address the national security concerns raised by imports of certain products. Congress should consider expanding this authority to include the economic security concerns. Such a change would still require an investigation led by the secretary of commerce, in consultation with other parts of the U.S. government, thereby ensuring a transparent statement of why such actions are necessary. Given the interconnected nature of trade in today’s economy, the secretary of commerce’s recommendations should include efforts to minimize deleterious impacts on supply chains, particularly in the economies of key trading partners.

If the United States is serious about rebuilding its industrial sector around key, strategic goods, then a modified Section 232 authority would provide extra safeguards against predatory trade practices that could affect sectors of national significance. Sectors such as semiconductors, advanced batteries, electric vehicles, and quantum computing would be prime candidates to utilize an expanded Section 232 authority.

Given the delicate nature of economic security-based tariff protection, Congress could include in its amendment of the statute a requirement that any executive action to increase or decrease tariffs based on economic security concerns withstand a 30-day congressional review period. It may even make sense to consider tying increased tariff protection to a requisite investment in domestic manufacturing capacity—perhaps using the generated tariff revenue for this purpose).

##### Tie tariff protection to industry investment in competitiveness

Trade remedy protection can be a lifeline that keeps local factories operating, but without any requirement to invest in long-term competitiveness, that is rarely enough to hire back workers, modernize production processes, or take other steps that could alleviate the threat of subsidized import competition over the long term. In some situations, this is made more challenging, because the firms that benefit from trade enforcement actions are not equipped to scale at a rate necessary to meet domestic demand for their products. Trade enforcement petitions should thus require the petitioner to state clearly how trade protection will enable them to grow in the United States as well as the time needed to meet expected changes in demand. Note that Section 201 safeguard requests do require the petitioner to offer a plan for readjustment to import competition, but this is unenforceable and rarely survives for long even if safeguards are implemented.

Moreover, tariff protection should be contingent on the recipient firm or firms’ commitment to paying their workers a fair wage; commitment to expand and grow in domestic communities by hiring new workers, or hiring back previously laid-off workers; and commitment to train their workforce to better compete in the competitive job market of the future. This sort of conditionality is likely to raise eyebrows for those who believe trade remedies should address only the immediate price difference between subsidized imports and a domestically produced alternative. But it is a more fulsome response that recognizes that price parity does not, on its own, rehire workers, rebuild communities, or prepare firms to compete in the future.

If, for example, it is expected to take several years for an industry to increase U.S. production long enough to fulfill expected orders—as was the case with chassis manufacturers in 2021—then the law ought to allow for a delay in the imposition of duties for a period of time necessary to minimize any harmful impacts on downstream industries and consumers. In the case of AD/CVD duties, it may be beneficial to change the annual adjustment of duties based on a combination of the domestic industry’s recovery and the actual amount of dumping or subsidization—rather than only considering changes in the level of subsidies provided to a foreign firm.

##### Develop a new trade authority that enables tariffs in critical sectors to manage trade with nonmarket economies without having to demonstrate injury or the threat of injury

Congress should create a new trade policy authority that enables the president to proactively manage trade in specific, critical sectors between the United States and its nonmarket competitors without the need to prove injury or potential injury. There are parts of the U.S.-China trade relationship, for example, that need to be controlled in a way that supports American economic security and derisks supply chains. Sectors such as AI, quantum computing, biotech, and semiconductors are so critical to the future that it behooves the administration to act proactively to ensure enduring American leadership. Such new authorities should include provisions that allow Congress to limit the president’s actions or provide it the ability to reverse course.

##### Enable the president to provide alternative remedies when AD/CVD duties are deemed harmful to the national interest

It is wise to have civil servants review nothing but facts and to remain removed from political pressure when determining duty rates. Yet, in many instances, providing a trade enforcement benefit to one industry results in a cost being paid by others—consumers, alternative industries, or trading partners. Congress should thus afford the president the ability to override AD/CVD duties if they deem those duties to run counter to the national interest and instead offer an alternative remedy that achieves the same effect, while minimizing downstream impacts on the broader economy. Such an authority should be prescribed clearly in law with specific benchmarks and processes, including an opportunity for Congress to override the president’s decision within a set period of time.

#### Opportunities available for the Biden administration in current law

##### Use the Section 301 investigation into Chinese commercial shipbuilding requested by the United Steelworkers to demonstrate the viability of nontariff remedies

On March 12, 2024, the United Steelworkers (USW) and other labor organizations filed a Section 301 petition, requesting that the USTR open an investigation into Chinese commercial shipbuilding.55 The petition is highly innovative in that it does not request tariffs on Chinese-made ships, but rather suggests that fees be imposed on vessels built in China that dock at U.S. ports—and that the proceeds be used to establish a domestic shipbuilding industry revitalization fund.56 During a speech to the USW on April 17, President Joe Biden called on the USTR to accept the petition and begin an investigation.57 The administration should take the opportunity to use its Section 301 investigation to demonstrate the viability of using nontariff actions as an appropriate trade remedy, as well as of rebuilding a domestic industry’s capacity to produce an appropriate objective rather than viewing price parity between domestically produced goods and subsidized imports as the only goal.

##### Allow projections of damages and other evidence to be used in assessing the need for tariff protection rather than actual damages

In many fast-moving sectors, waiting to calculate the economic damages of unfair or illegal import competition means waiting too long to take any action that could meet the needs of domestic producers. The administration should allow an industry to file a petition for AD/CVD or Section 201 protection to use economic models or projections of damages, or other forms of evidence to demonstrate the threat of injury they face. Agencies would need to weigh the rigor of the projection as part of their findings, which could be challenging, but this is a better option than allowing an industry to wither before any protection can be offered.

##### Update rules that govern ‘standing’ to enable component part manufacturers to bring AD/CVD cases against finished products entering the U.S. market

If a finished good manufactured abroad is dumped in the U.S. market, it is likely that it includes minimal, and often zero, U.S. content. The product’s presence in the U.S. market thus “injures” both its direct competitor in the United States and that domestic firm’s entire supply chain. And since most U.S. manufacturers source some product from fellow U.S. manufacturers as part of their supply chains, the impact of dumping goes well beyond the direct U.S.-based competitor. These smaller supply chain firms ought to have the ability to petition the U.S. government for trade enforcement assistance in this scenario.58

##### Develop a mechanism to coordinate trade enforcement action with trading partners

One of the key challenges of unilateral trade enforcement is that while one’s domestic market may be spared from dumped imports, those same dumped imports likely land in a different market once blocked from the United States. This ultimately hurts the United States’ ability to export in the affected sectors and hurts U.S. partners and allies, whose industries often feel the brunt of unfair import competition, usually without the same trade policy authorities available in the United States. What is needed is a mechanism to coordinate trade enforcement actions, perhaps using entities such as the U.S.-EU Trade and Technology Council or the Indo-Pacific Economic Framework for Prosperity to align trade enforcement actions whenever possible.59

##### Use AD/CVD authorities to advance a pro-climate and pro-worker agenda

AD/CVD authorities have always been used when addressing subsidies provided to a foreign manufacturer by their home government. But it is equally true that often, support comes in the form of not requiring certain actions or looking the other way at a practice that would be unacceptable in other markets. The Biden administration ought to bring an AD/CVD case against products made in markets with lax labor, environmental, or climate laws, which by not requiring a foreign manufacturer to make necessary improvements to their practices allows them to produce at a cost below what would otherwise be the case.

##### Self-initiate a Section 232 review of the national security risk posed by carbon-intensive imports

The U.S. Department of Defense has long noted the national security implications of climate change, so the link between importing carbon-intensive products and national security ought to be obvious and well established.60 The Commerce Department should thus self-initiate a Section 232 investigation into the importation of carbon-intensive products in key industries. For example, if the Commerce Department reviewed the national security implications of imports of aluminum, cement, electricity, fertilizers, hydrogen, and iron and steel, the result could be duties that mirror those associated with the European Union’s carbon border adjustment or could provide the authority needed to expand the potential Global Arrangement on Sustainable Steel and Aluminum to other sectors, enabling the provision of market access in select sectors on the basis of carbon intensity.61

Importantly, if the United States were to strengthen its trade remedy tools in the manner described in this report, it should expect and accept that its trading partners will follow suit. In a world defined by interconnected supply chains and intense geo-economic competition, such reciprocal actions taken by U.S. trading partners would be a net positive for the nation, as they would further isolate products produced illegally, or those unfairly subsidized to compete in the global market. And if the United States’ trading partners matched their updates to trade enforcement regimes with the scale of investment that the Biden administration has made in rebuilding the United States’ industrial base, it would go a long way toward speeding the transition to a cleaner, more resilient, and fairer trade system.

## Conclusion

For the first time in several generations, the United States has begun to implement an industrial policy. The results have been impressive, with more than $860 billion of new private sector investment having flowed into American manufacturing—the effects of which will be felt for decades to come in the form of greater economic resilience and national security.62 But along with a broader commitment to industrial policy and a rethink of how trade can support workers and the environment must come a modernization of how the United States uses its trade enforcement tools. Trade enforcement alone will not dramatically rebuild the U.S. industrial base. But when paired effectively with other trade policy measures, a strong, calibrated, and appropriate trade enforcement agenda can—and should—add another positive stimulant to the Biden administration’s reindustrialization agenda. This is why getting these issues right is so important.

## Acknowledgments

The author would like to thank Peter Harrell for his contributions to this report.

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TABLE 1

![Table showing the commonly used legal authorities used to support American producers, typically through tariffs, when faced with competition from illegal or unfair competition from foreign imports.](https://datawrapper.dwcdn.net/0Akmh/full.png)

![Table showing the commonly used legal authorities used to support American producers, typically through tariffs, when faced with competition from illegal or unfair competition from foreign imports.](https://datawrapper.dwcdn.net/0Akmh/full.png)

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### Endnotes

  1. The White House, “FACT SHEET: President Biden Takes Action to Protect American Workers and Businesses from China’s Unfair Trade Practices,” May 14, 2024, available at <https://www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/>.
  2. The White House, “FACT SHEET: The United States and European Union To Negotiate World’s First Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade,” October 31, 2021, available at <https://www.whitehouse.gov/briefing-room/statements-releases/2021/10/31/fact-sheet-the-united-states-and-european-union-to-negotiate-worlds-first-carbon-based-sectoral-arrangement-on-steel-and-aluminum-trade/>.
  3. International Trade Administration, “AD/CVD Search,” available at <https://access.trade.gov/ADCVD_Search.aspx> (last accessed May 2024).
  4. U.S. Department of the Treasury, “Unpacking the Boom in U.S. Construction of Manufacturing Facilities,” June 27, 2023, available at <https://home.treasury.gov/news/featured-stories/unpacking-the-boom-in-us-construction-of-manufacturing-facilities>. 
  5. Daniel R. Pearson, “Global Steel Overcapacity: Trade Remedy ‘Cure’ Is Worse than the ‘Disease’,” Cato Institute, April 11, 2016, available at <https://www.cato.org/free-trade-bulletin/global-steel-overcapacity-trade-remedy-cure-worse-disease>. 
  6. The White House, “Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution,” April 27, 2023, available at <https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/04/27/remarks-by-national-security-advisor-jake-sullivan-on-renewing-american-economic-leadership-at-the-brookings-institution/>.
  7. Ibid. 
  8. National Archives, “Alexander Hamilton’s Final Version of the Report on the Subject of Manufactures,” December 5, 1791, available at <https://founders.archives.gov/documents/Hamilton/01-10-02-0001-0007>. 
  9. Tyler Halloran, “A Brief History of Tariffs in the United States and the Dangers of their Use Today,” Fordham Journal of Corporate and Financial Law, March 17, 2019, available at <https://news.law.fordham.edu/jcfl/2019/03/17/a-brief-history-of-tariffs-in-the-united-states-and-the-dangers-of-their-use-today/>. 
  10. Mary Amiti, Stephen J. Redding, and David Weinstein, “The Impact of the 2018 Trade War on U.S. Prices and Welfare” (Cambridge, MA: National Bureau of Economic Research, 2019), available at <https://www.nber.org/system/files/working_papers/w25672/w25672.pdf>.
  11. Office of the U.S. Trade Representative, “Industrial Tariffs,” available at <https://ustr.gov/issue-areas/industry-manufacturing/industrial-tariffs> (last accessed April 2024).
  12. Tariff Act of 1789, 1st Cong., 2nd sess. (July 31, 1789), available at <https://fraser.stlouisfed.org/files/docs/historical/congressional/tariff-act-1789.pdf>. 
  13. European Commission, “Carbon Border Adjustment Mechanism,” available at <https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en> (last accessed April 2024); Ankita Gangotra, Willy Carlsen, and Kevin Kennedy, “4 US Congress Bills Related to Carbon Border Adjustments in 2023,” World Resources Institute, December 13, 2023, available at <https://www.wri.org/update/4-us-congress-bills-related-carbon-border-adjustments-2023>; Trevor Sutton and Mike Williams, “ Trade Beyond Neoliberalism: Concluding a Global Arrangement on Sustainable Steel and Aluminum” (Washington: Center for American Progress, 2023), available at <https://www.americanprogress.org/article/trade-beyond-neoliberalism-concluding-a-global-arrangement-on-sustainable-steel-and-aluminum/>. 
  14. Congressional Research Service, “Section 232 of the Trade Expansion Act of 1962” (Washington: 2022), available at <https://crsreports.congress.gov/product/pdf/IF/IF10667>. 
  15. Congressional Research Service, “Safeguards: Section 201 of the Trade Act of 1974” (Washington: 2021), available at <https://sgp.fas.org/crs/misc/IF10786.pdf>. 
  16. U.S. Customs and Border Protection, “Are My Goods Subject to Quota?”, available at <https://www.cbp.gov/trade/quota/quota-restrict#:~:text=Tariff%20Rate%20Quotas%20(TRQs)%20permit,a%20higher%20rate%20of%20duty> (last accessed April 2024).
  17. Congressional Research Service, “Section 301 of the Trade Act of 1974” (Washington: 2024), available at <https://crsreports.congress.gov/product/pdf/IF/IF11346>. 
  18. Congressional Research Service, “Trade Remedies: Antidumping and Countervailing Duties” (Washington: 2023), available at <https://crsreports.congress.gov/product/pdf/if/if10018>; International Trade Administration, “ADCVD Proceedings,” available at <https://www.trade.gov/data-visualization/adcvd-proceedings> (last accessed April 2024).
  19. Congressional Research Service, “Trade Remedies: Antidumping and Countervailing Duties.”
  20. U.S. International Trade Commission, “Understanding Antidumping and Countervailing Duty Investigations,” available at <https://www.usitc.gov/press_room/usad.htm> (last accessed April 2024). 
  21. U.S. International Trade Commission, “Understanding Investigations of Intellectual Property Infringement and Other Unfair Practices In Import Trade (Section 337),” available at <https://www.usitc.gov/press_room/us337.htm> (last accessed April 2024).
  22. John Veroneau and Catherine Gibson, “The President’s Long-Forgotten Power To Raise Tariffs” (Washington: Covington & Burling LLP, 2016), available at <https://www.cov.com/-/media/files/corporate/publications/2016/12/law360_the_presidents_long_forgotten_power_to_raise_tariffs.pdf>. 
  23. Jill Colvin and Colleen Long, “Trump announces new Mexican tariffs in response to migrants,” The Associated Press, May 31, 2019, available at <https://apnews.com/article/afec271c5f9c4fdb82f57b48cb593add>.
  24. Congressional Research Service, “The International Emergency Economic Powers Act: Origins, Evolution, and Use” (Washington: 2024), available at <https://sgp.fas.org/crs/natsec/R45618.pdf>. 
  25. Ibid.
  26. International Trade Administration, “Fact Sheet: Commerce Initiates Antidumping Duty (AD) and Countervailing Duty (CVD) Investigations of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules (Solar Cells) from the People’s Republic of China (China),” available at <https://enforcement.trade.gov/download/factsheets/factsheet_prc-solar-cells-ad-cvd-init.pdf> (last accessed April 2024); Office of the U.S. Trade Representative, “Section 201 – Imported Solar Cells and Modules,” available at <https://ustr.gov/issue-areas/enforcement/section-201-investigations/investigation-no-ta-201-75-cspv-cells> (last accessed April 2024).
  27. Office of the U.S. Trade Representative, “2023 Report to Congress on China’s WTO Compliance” (Washington: 2024), available at [https://ustr.gov/sites/default/files/USTR%20Report%20on%20China's%20WTO%20Compliance%20(Final).pdf](https://ustr.gov/sites/default/files/USTR%20Report%20on%20China's%20WTO%20Compliance%20\(Final\).pdf).
  28. The White House, “Remarks by National Economic Advisor Lael Brainard on Responding to the Challenges of China’s Industrial Overcapacity,” May 16, 2024, available at [https://www.whitehouse.gov/briefing-room/speeches-remarks/2024/05/16/remarks-by-national-economic-advisor-lael-brainard-on-responding-to-the-challenges-of-chinas-industrial-overcapacity/#:~:text=In%20part%2C%20China's%20overcapacity%20is,ranks%20among%20the%20world's%20highest](https://www.whitehouse.gov/briefing-room/speeches-remarks/2024/05/16/remarks-by-national-economic-advisor-lael-brainard-on-responding-to-the-challenges-of-chinas-industrial-overcapacity/#:~:text=In%20part%2C%20China's%20overcapacity%20is,ranks%20among%20the%20world's%20highest).
  29. database.earth, “GDP (Gross Domestic Product) by Country in 1979,” available at <https://database.earth/economy/gdp/1979> (last accessed May 2024); Mark J. Perry, “The World’s Top 10 Manufacturing Nations Since 1970,” Foundation for Economic Education, February 3, 2020, available at <https://fee.org/articles/the-world-s-top-10-manufacturing-nations-since-1970/>. 
  30. World Population Review, “Manufacturing by Country,” available at <https://worldpopulationreview.com/country-rankings/manufacturing-by-country> (last accessed May 2024).
  31. Eric Wesoff, “Can the US manufacture enough solar panels to meet its surging demand?”, Canary Media, June 7, 2023, available at <https://www.canarymedia.com/articles/solar/can-the-us-manufacture-enough-solar-panels-to-meet-its-surging-demand>. 
  32. Congressional Research Service, “Managed Trade and Quantitative Restrictions: Issues for Congress” (Washington: 2023), available at <https://crsreports.congress.gov/product/pdf/IF/IF11035/9>. 
  33. U.S. Treasury Fiscal Data, “How much revenue has the U.S. government collected this year?”, available at <https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/> (last accessed April 2024).
  34. Congressional Research Service, “U.S. Tariff Policy: Overview” (Washington: 2021), available at <https://crsreports.congress.gov/product/pdf/IF/IF11030/4>. 
  35. Sujai Shivakumar, Charles Wessner, and Thomas Howell, “The Strategic Importance of Legacy Chips” (Washington: Center for Strategic and International Studies, 2023), available at <https://www.csis.org/analysis/strategic-importance-legacy-chips>. 
  36. Eric Martin, “US Cites Threat of Chinese EVs Made in Mexico as Trade Concern,” _Bloomberg_ , May 14, 2024, <https://www.bloomberg.com/news/articles/2024-05-14/us-cites-threat-of-chinese-evs-made-in-mexico-as-trade-concern>.
  37. The White House, “FACT SHEET: President Biden Takes Action to Protect American Workers and Businesses from China’s Unfair Trade Practices.” 
  38. International Trade Administration, “U.S. Antidumping and Countervailing Duties,” available at <https://www.trade.gov/faq/faqs-initiation-antidumping-duty-andor-countervailing-duty-investigation> (last accessed April 2024).
  39. U.S. Department of Commerce International Trade Administration, “Certain Chassis and Subassemblies Thereof From the People's Republic of China: Antidumping Duty Order,” _Federal Register_ 86 (128) (2021): 36093–36095, available at <https://www.federalregister.gov/documents/2021/07/08/2021-14561/certain-chassis-and-subassemblies-thereof-from-the-peoples-republic-of-china-antidumping-duty-order>; Jim Vinoski, “CIMC Brings Its Chassis Manufacturing To The U.S.,” Forbes, January 8, 2020, available at <https://www.forbes.com/sites/jimvinoski/2020/01/06/cimc-brings-its-chassis-manufacturing-to-the-us/?sh=763a071b47b8>; Wiley, “U.S. Department of Commerce Makes Affirmative Final Determination That Chassis from China Are Dumped at Rates of 188.05%,” Press release, May 13, 2021, available at <https://www.wiley.law/pressrelease-US-Department-of-Commerce-Makes-Affirmative-Final-Determination-That-Chassis-from-China-Are-Dumped-at-Rates-of-188-05-per-cent>. 
  40. Ari Ashe, “US providers face higher costs after duty ruling on Chinese-made chassis,” Journal of Commerce, April 13, 2021, available at <https://www.joc.com/article/us-providers-face-higher-costs-after-duty-ruling-chinese-made-chassis_20210413.html>. 
  41. European Commission, “EU Trade Commissioner Mandelson proposes progressive duty following finding of dumping of Chinese and Vietnamese leather shoes,” Press release, February 23, 2006, available at <https://ec.europa.eu/commission/presscorner/detail/en/IP_06_218>. 
  42. Barbara H. Wixom, “Cashing in on Your Data,” MIT Center for Information Systems Research, August 21, 2014, available at <https://cisr.mit.edu/publication/2014_0801_DataMonetization_Wixom>.
  43. The Commerce Department’s March 25th new regulations on its AD/CVD procedures highlighted this issue, stating that foreign government inaction could result in prices that are unreasonably suppressed and create an unlevel playing field between producers in the United States and suppliers in countries in which governments provide “weak, ineffective, or nonexistent property (including intellectual property), human rights, labor, and environmental protections.” See U.S. Department of Commerce International Trade Administration, “Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws,” _Federal Register_ 89 (58) (2024): 20766–20841, available at <https://www.federalregister.gov/documents/2024/03/25/2024-05509/regulations-improving-and-strengthening-the-enforcement-of-trade-remedies-through-the-administration>. 
  44. Benji Jones, “Earth’s future depends on the Amazon. This month, it’s up for a vote,” Vox, October 3, 2022, available at <https://www.vox.com/down-to-earth/2022/9/29/23373427/amazon-rainforest-brazil-jair-bolsonaro-lula-deforestation>; World Wildlife Fund, “Unstable Cattle Ranching,” available at <https://wwf.panda.org/discover/knowledge_hub/where_we_work/amazon/amazon_threats/unsustainable_cattle_ranching/> (last accessed April 2024).
  45. Foreign Agricultural Service, “Brazil: Livestock and Products Annual,” available at <https://fas.usda.gov/data/brazil-livestock-and-products-annual-10> (last accessed April 2024); Statista, “Exports of beef and veal from Brazil in 2022, by destination,” available at <https://www.statista.com/statistics/617492/beef-and-veal-export-value-brazil-by-country-of-destination/> (last accessed April 2024). 
  46. Statista, “Exports of beef and veal from Brazil in 2022, by destination.”
  47. Amy Lv and Dominique Patton, “China steel exports seen surging to seven-year high as home demand wilts,” Reuters, June 29, 2023, available at <https://www.reuters.com/markets/commodities/china-steel-exports-seen-surging-seven-year-high-home-demand-wilts-2023-06-29/>. 
  48. Leveling the Playing Field 2.0 Act of 2023, S.1856, 118th Cong., 1st sess. (June 7, 2023), available at [https://www.congress.gov/bill/118th-congress/senate-bill/1856/text?s=1&r=62](https://www.congress.gov/bill/118th-congress/senate-bill/1856/text?s=1&r=62). 
  49. Greg Nelson, “On Trade, Here’s What the President Signed into Law,” The Obama White House, June 29, 2015, available at <https://obamawhitehouse.archives.gov/blog/2015/06/29/trade-here-s-what-president-signed-law>. 
  50. U.S. Department of Commerce International Trade Administration, “Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws.”
  51. Charles Noble Gregory, “The Doctrine of Continuous Voyage,” _Harvard Law Review_ 24 (3) (1911): 167–181, available at <https://www.jstor.org/stable/1325196?socuuid=32aa65fa-945e-46c9-8166-6e307fe14feb>. 
  52. Congressional Research Service, “Section 307 and U.S. Imports of Products of Forced Labor: Overview and Issues for Congress” (Washington: 2021), available at <https://crsreports.congress.gov/product/pdf/R/R46631#:~:text=Section%20307%20of%20the%20Tariff,forced%20or%20indentured%20child%20labor>. 
  53. International Trade Administration, “Antidumping and Countervailing Duty FAQs,” available at <https://www.trade.gov/antidumping-and-countervailing-duty-frequently-asked-questions?anchor=content-node-t7-field-lp-region-2-6> (last accessed April 2024).
  54. International Trade Administration, “The Department of Commerce’s First-of-its-Kind Supply Chain Center,” available at <https://www.trade.gov/supply-chain-center> (last accessed April 2024); U.S. Department of Homeland Security, “Biden-Harris Administration Announces Supply Chain Resilience Center to Protect U.S. Supply Chain from Evolving Threats,” Press release, November 27, 2023, available at <https://www.dhs.gov/news/2023/11/27/biden-harris-administration-announces-supply-chain-resilience-center-protect-us>. 
  55. United Steelworkers, “USW Files Section 301 Petition on Shipbuilding,” Press release, March 12, 2024, available at <https://m.usw.org/news/media-center/releases/2024/usw-files-section-301-petition-on-shipbuilding>.
  56. Sandler, Travis and Rosenberg, “Fees on Ships, Other Measures Sought in New Section 301 Petition” (Washington: 2024), available at <https://www.strtrade.com/trade-news-resources/str-trade-report/trade-report/march/fees-on-ships-other-measures-sought-in-new-section-301-petition>. 
  57. United Steelworkers, “USW Backs Biden’s Worker-Centered Trade Policy as President Visits Union Headquarters,” Press release, April 17, 2024, available at <https://m.usw.org/news/media-center/releases/2024/usw-backs-bidens-worker-centered-trade-policy-as-president-visits-union-headquarters>.
  58. National Institutes of Standards and Technology, “U.S. Manufacturing Economy,” available at <https://www.nist.gov/el/applied-economics-office/manufacturing/manufacturing-economy/total-us-manufacturing> (last accessed April 2024).
  59. International Trade Administration, “ U.S.-EU Trade and Technology Council,” available at <https://www.trade.gov/useuttc> (last accessed April 2024); U.S. Department of Commerce, “Indo-Pacific Economic Framework,” available at <https://www.commerce.gov/ipef> (last accessed April 2024).
  60. U.S. Department of Defense, “Tackling the Climate Crisis,” available at <https://www.defense.gov/spotlights/tackling-the-climate-crisis/> (last accessed April 2024).
  61. European Commission, “Carbon Border Adjustment Mechanism”; Sutton and Williams, “ Trade Beyond Neoliberalism.”
  62. The White House, “Investing in America,” available at <https://www.whitehouse.gov/invest/> (last accessed April 2024).



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Are tariffs good or bad for the economy? Research says they can be bad for the supply chain

# Are tariffs good or bad for the economy? Research says they can be bad for the supply chain

## [Are tariffs good or bad for the economy? Research says they can be bad for the supply chain](https://news.gsu.edu/2024/10/15/are-tariffs-good-or-bad-for-the-economy/)

October 15, 2024

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##### Media Contact

###### Holly Frew

Office of Communications & Marketing  
Robinson College of Business  


[404-413-7076](tel:404-413-7076)

###### [[email protected]](/cdn-cgi/l/email-protection#c9a1afbbacbe89aebabce7acadbc)

America, it seems, can't quit tariffs. Like corduroy and round glasses, these short-term taxes sometimes fall out of fashion. But before you know it, they're back in style – a quick fix deployed whenever foreign competitors seize a competitive advantage.

Tariffs have experienced a major renaissance over the last five years, at home and abroad. In the U.S., where the political divide seems to widen by the hour, something of a consensus has formed on this traditionally divisive issue. President Joe Biden has extended many of the levies, though not all, imposed during President Donald Trump’s administration while also authorizing new tariffs.

If re-elected, Trump plans to implement a 10 percent tariff on all imported goods, 60 percent on goods from China. On the campaign trail, Vice President Kamala Harris has said the proposed Trump tariffs would act as a "sales tax" on American families, however she has not specified whether she would extend the Biden tariffs if elected president. On her campaign website she vows to continue supporting "American leadership in semiconductors, clean energy, AI, and other cutting-edge industries of the future," while addressing “unfair trade practices from China or any competitor that undermines American workers.”

[In Protect Me Not: the effects of tariffs on U.S. supply networks](https://www.sciencedirect.com/science/article/abs/pii/S1478409224000037) [Sina Golara](https://robinson.gsu.edu/profile/sina-golara/), assistant professor of supply chain and operations management at Georgia State University’s Robinson College of Business, and coauthors from Colorado State University, Arizona State University, and Kuwait University, urge politicians to exercise caution when it comes to tariffs.

![Sina Golara](https://news.gsu.edu/files/2024/10/Sina-Golara-photo.png)

Sina Golara

Golara and coauthors acknowledge the levies can produce temporary benefits but assert that the long-term impact on the global flow of products is often overlooked and regularly misunderstood.

Rationales vary for the recent spate of tariffs, the study found, from protecting intellectual properties proactively to responding in retaliatory ways against rogue actors like Russia, subject to bans on oil imports and exports ever since its invasion of Ukraine.

"While tariffs can provide some protection to certain industries, they can also create inefficiencies for the industries they were designed to protect, as well as for their supply chain partners," the study concluded.

Focusing on the implementation of tariffs by the U.S. in 2018, Golara and his colleagues traced "an overall negative impact" on firm value that led to a decrease in the value of domestic producers within the protected industries. The financial impact on firms in their supplier and customer industries was mixed.

"These findings demonstrate the ripple effect of unintended consequences that tariffs can lead to throughout supply chains, motivating further theoretical development and informing trade policy," the study asserts.

While tariffs may provide short-term relief and, perhaps, a psychological lift to the public, they prevent companies from addressing the problems that led to market inequities in the first place, Golara said. Innovation suffers.

"A painkiller doesn't address the problem," he said. "It's just a temporary solution."

Economists have grown increasingly cool to tariffs. If carefully implemented, they occasionally yield positive results for vulnerable domestic industries, Golara acknowledged.

But most view tariffs as ineffective and outdated tools to correct a country’s growing trade imbalance. This has led some to warn that tariffs typically end up harming the exporting country but also consumers and businesses from the importing nation.

Two recent tariffs, imposed in the pre-Trump era, support those findings.

In 2002, President George W. Bush raised tariffs on selected steel products in hopes of saving the U.S. steel industry. The move backfired. Longtime trading partners were outraged and threatened to retaliate on American-made goods. More jobs were lost than saved.

“We found there were 10 times as many people in steel-using industries as there were in steel-producing industries,” former U.S. Sen. Lamar Alexander (R-Tenn.) told Politico in a 2018 interview. “They lost more jobs than exist in the steel industry.”

Seven years after the steel tariff was imposed, President Barack Obama slapped a 35 percent levy on Chinese tires. The president would later boast the tariff saved 1,200 U.S. tire jobs and spurred a rise in U.S. tire production after a protracted decline.

But a 2012 review by the Peterson Institute of International Economics found that, as a result of the tariffs, Americans ended up paying more for tires. The cost of Chinese-made tires rose 26 percent and, with less competition from China, domestic tire makers raised prices 3.2 percent.

Altogether, the increase in prices from the tire tariff cost Americans an extra $1.1 billion, which translated to an estimated 3,731 retail jobs lost, the Peterson study determined.

Golara said such unintended consequences typically accompany tariffs. Protecting one industry can cause ripple effects on other industries that supply or purchase their goods.

Golara and his associates focused on China, which has endured restrictions, funded by the politically popular CHIPS Act, on the integration of Chinese suppliers in semiconductor development.

The 2018 tariffs were intended to protect America's manufacturing base. But did they?

Golara said the effects of the levies are much more complicated than those in power may have you believe.

"Their effectiveness is still up for debate," Golara said.

Tariffs are cyclical, Golara said, and there have been successful implementations that have yielded lasting benefits. "Protect Me Not" notes the 1964 “chicken tax” which insulated U.S. heavy truck manufacturers from significant foreign competition for over 50 years helped the Ford F-150 truck to become the best-selling automobile in the U.S.

But the risks have become more pervasive, the study found. They can lead to an "increased political risk, supply uncertainty, a threat of retaliatory tariffs and the inability of politicians to optimally select a tariff rate and maintain it."

The 2018 tariffs, Golara and his colleagues found, increased costs by $51 billion per year, a burden carried primarily by U.S. companies and consumers.

"With such a high price tag, it is crucial for policy makers to understand the total impact of tariffs and whether they achieve their intended goals, and what their overall impact on supply chains can be," the researchers wrote.

The issue is further complicated by the interconnectivity between the U.S. and Chinese economies. Engaging in a trade war with your top trade partner, as China has been for much of the 21st century, is as counterproductive as it sounds, Golara said.

"In addition to hurting firms in the protected industries, retaliatory Chinese counter-tariffs also hurt non-protected U.S. firms, particularly those in the agricultural industry," the study found.

Hard questions must be asked going forward, said Golara.

If tariffs are adopted at all, an optimal tariff rate needs to be accurately calculated and “skillfully administered,” temporarily until the industry can address its underlying shortcomings, Golara and colleagues concluded. The uncertainty that accompanied the 2018 tariff rollout, which saw rates abruptly increase from 10 to 25 percent, can’t be repeated.  
Will that happen?

“To be honest, all I see are partisan approaches,” Golara said. “We have to move beyond that if we’re going to continue deploying tariffs.”

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url: http://arxiv.org/abs/2210.09690v1
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[2210.09690v1] Electricity grid tariffs for electrification in households: Bridging the gap between cross-subsidies and fairness

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# Economics > General Economics

**arXiv:2210.09690v1** (econ) 

[Submitted on 18 Oct 2022]

# Title:Electricity grid tariffs for electrification in households: Bridging the gap between cross-subsidies and fairness

Authors:[Claire-Marie Bergaentzlé](https://arxiv.org/search/econ?searchtype=author&query=Bergaentzl%C3%A9,+C) (1), [Philipp Andreas Gunkel](https://arxiv.org/search/econ?searchtype=author&query=Gunkel,+P+A) (1), [Mohammad Ansarin](https://arxiv.org/search/econ?searchtype=author&query=Ansarin,+M) (2), [Yashar Ghiassi-Farrokhfal](https://arxiv.org/search/econ?searchtype=author&query=Ghiassi-Farrokhfal,+Y) (2), [Henrik Klinge Jacobsen](https://arxiv.org/search/econ?searchtype=author&query=Jacobsen,+H+K) (1) ((1) DTU Management, Technical University of Denmark, 2800 Kgs Lyngby, Denmark, (2) Rotterdam School of Management, Erasmus University, 3062PA Rotterdam, Netherlands)

View a PDF of the paper titled Electricity grid tariffs for electrification in households: Bridging the gap between cross-subsidies and fairness, by Claire-Marie Bergaentzl\'e (1) and 11 other authors

[View PDF](/pdf/2210.09690v1)

> Abstract:Developing new electricity grid tariffs in the context of household electrification raises old questions about who pays for what and to what extent. When electric vehicles (EVs) and heat pumps (HPs) are owned primarily by households with higher financial status than others, new tariff designs may clash with the economic argument for efficiency and the political arguments for fairness. This article combines tariff design and redistributive mechanisms to strike a balance between time-differentiated signals, revenue stability for the utility, limited grid costs for vulnerable households, and promoting electrification. We simulate the impacts of this combination on 1.4 million Danish households (about 50% of the country's population) and quantify the cross-subsidization effects between groups. With its unique level of detail, this study stresses the spillover effects of tariffs. We show that a subscription-heavy tariff associated with a ToU rate and a low redistribution factor tackles all the above goals. 

Comments: | 40 pages, 8 figures, journal article  
---|---  
Subjects: |  General Economics (econ.GN)  
Cite as: | [arXiv:2210.09690](https://arxiv.org/abs/2210.09690) [econ.GN]  
  | (or  [arXiv:2210.09690v1](https://arxiv.org/abs/2210.09690v1) [econ.GN] for this version)   
  |  <https://doi.org/10.48550/arXiv.2210.09690> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: Philipp Andreas Gunkel [[view email](/show-email/dc52ef7d/2210.09690)]   
**[v1]** Tue, 18 Oct 2022 09:02:41 UTC (1,454 KB)  


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url: http://arxiv.org/abs/2405.08052v1
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hash: 518de931105b66d6962dccecda4cdef89873ce8cd73b03a28012fd68cf5176df
title:
[2405.08052v1] Trade Openness, Tariffs and Economic Growth: An Empirical Study from Countries of G-20

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# Economics > General Economics

**arXiv:2405.08052v1** (econ) 

[Submitted on 13 May 2024]

# Title:Trade Openness, Tariffs and Economic Growth: An Empirical Study from Countries of G-20

Authors:[S M Toufiqul Huq Sowrov](https://arxiv.org/search/econ?searchtype=author&query=Sowrov,+S+M+T+H)

View a PDF of the paper titled Trade Openness, Tariffs and Economic Growth: An Empirical Study from Countries of G-20, by S M Toufiqul Huq Sowrov

[View PDF](/pdf/2405.08052v1)

> Abstract:International trade has been in the forefront of economic development and growth debates. Trade openness, its definition, scope, and impacts have also been studied numerously. Tariff has been dubbed as negative influencer of economic growth as per conventional wisdom and most empirical studies. This paper empirically examines relationships among trade openness as trade share to GDP, import tariff rate and economic growth. Panel dataset of 11 G-20 member countries were selected for the study. Results found a positively significant correlation between trade openness and economic growth. Tariff has negatively significant correlation with economic growth in lagged model. OLS and panel data fixed-effects regression were employed to carry out the regression analysis. To deal with endogeneity in trade openness variable, a 1-year lag regression technique was conducted. Results are robust and significant. Policy recommendation suggests country specific trade opening and tariff relaxation. 

Subjects: |  General Economics (econ.GN)  
---|---  
Cite as: | [arXiv:2405.08052](https://arxiv.org/abs/2405.08052) [econ.GN]  
  | (or  [arXiv:2405.08052v1](https://arxiv.org/abs/2405.08052v1) [econ.GN] for this version)   
  |  <https://doi.org/10.48550/arXiv.2405.08052> Focus to learn more arXiv-issued DOI via DataCite  
  
## Submission history

From: S M Toufiqul Huq Sowrov [[view email](/show-email/a88021b5/2405.08052)]   
**[v1]** Mon, 13 May 2024 16:43:21 UTC (660 KB)  


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