International Trade in the 2020 Elections – Meh

Election Day is around the corner and ballots are already being cast.  Unlike 2016, when candidate Trump made international trade one of his top campaign issues, trade in this election cycle has rarely been only mentioned.  Perhaps if we didn’t have a coronavirus pandemic and outrage over racial and social injustice, trade might have been a more prominent issue in 2020.

For the first three years of his term, President Trump’s international trade policy has been highlighted by round after round of threatened and actual tariffs on products from targeted industries (steel, aluminum, solar modules, washing machines, autos and auto parts), or countries (most notably China, but also Mexico, Brazil, and Europe).  The rest of the world, not surprisingly, imposed their own tariffs against U.S. goods . Ear in his term, Trump, the self-declared “Tariff Man”, tweeted that “trade wars are good and easy to win.”

When Trump would roll out his tariffs, “free traders” and “fair traders” vigorously debated whether the tariffs were “good” or “bad.”  Those in favor argued the tariffs were necessary to counter unfair trading practices from China and other foreign competitors and to level the playing field and protect US industries. Those opposed argued the tariffs were misguided, ineffective, unlawful, unnecessary, and would harm more American companies than they would help and that the American economy would suffer overall.

Although most of Trump’s tariffs are still in effect, the debate on the direction of U.S. trade policy has been pretty muted this election cycle.  Since the U.S. and China signed their Phase One deal in January 2020, tariffs and U.S. trade policy have largely been out of the headlines and political ads.

One reason why trade has been less prominent in this election is that Biden and the Democratic party actually agree with Trump on many trade issues, including the need to be tougher on China.  Before Trump, Democrats traditionally were cast as more protectionist pro-labor “fair traders” than Republicans, who generally were viewed as pro-business “free traders.”  Now, hardly anyone is pushing for free trade policies once advocated by President Reagan.  Both Democrats and Republicans are equally hawkish on China trade issues, differing only on the margins.  For example, Biden’s camp has deemed it  “unrealistic” for the United States to “fully decouple” from China, as advocated by President Trump, but they are pushing for a “Buy American” program to reduce U.S. dependence on Chinese goods.  Indeed, the most notable difference in Biden’s and Trump’s trade policy is primarily on how the U.S. should try to rein in China.  Trump prefers unilaterally imposing U.S. tariffs on targeted imports, while Biden prefers multilateral trade action against China that is coordinated with U.S. allies.

Another reason why trade is not a hot election issue is because the tariffs have become part of the “new normal.”   Most companies were stunned when tariffs on Chinese goods were dropped onto the super-highway of trade connecting the U.S. and China like an unexpected toll booth disrupting U.S.-China supply chains.  But now that the China tariffs are clearly marked as an expected traffic slowdown spot on this highway, most companies have had time to plan accordingly and have already for the most part figured out how to deal with those tariffs.

Many stayed on the highway and continued importing Chinese goods as before.  U.S. importers simply paid the China tariffs and either absorbed the cost or shared the tariff costs with their suppliers or customers. These companies may not be thrilled with the delays or extra costs associated with the tariffs, but they have concluded that staying on this highway is still better than trying to find an alternative route.

Others decided to get off this highway by finding new suppliers outside China.  Before the tariffs, concerns that U.S. companies were too dependent on China as supply source were outweighed by the fact that Chinese suppliers generally were damn good at producing and exporting a panoply of products at an attractive price and there were few other alternative supply sources that could match it.  The China tariffs became the wake up call to push many companies to finally go out and find or develop new non-Chinese supply options.  Chinese suppliers often worked with U.S. buyers to develop new factories or supply options in other countries (e.g., Thailand, Vietnam, Cambodia, Taiwan, Indonesia, Mexico, Brazil, Colombia, etc.).

Others stayed on the highway and continued importing Chinese goods, but jumped the tollbooth or illegally used the HOV lane and avoided paying the tariffs by making false declarations about the country of origin or description of their products. These cheaters probably knew they were doing something illegal, but they were willing to risk that US Customs wouldn’t have enough enforcement bandwidth to catch their particular illegal shipments out of all the imports coming in. See Transshipment: No Magic Remedy Against Tariffs.

If, as widely expected, Biden wins the elections, many will not want Biden to remove Trump’s China tariffs.  For example, those companies that invested the time, money, and effort to find new suppliers or build new factories outside China will not be thrilled that their competitors who continued to source from China (legally or illegally) will be able to resume sourcing from China without the cost of the China tariffs. Having helped build new supply chain highways to the U.S. from any number of Southeast Asian and Latin American countries, those U.S. companies would be happy to see the U.S.-China highway continue to be roadblocked with tariffs, quotas, and anything else that would make it harder for their competitors who source only from China.

Ultimately, it’s not really surprising that the reaction to Trump’s tariffs has become almost blasé.  It doesn’t really matter whether Trump’s tariffs are called good, bad, fair, or ugly.  Where demand is strong enough, supply always finds a way to meet that demand.  For example, some bicycles are still subject to China tariffs now that some of the bicycle exclusions have expired, but the coronavirus has caused demand for bicycles to skyrocket far beyond available supply.  With so few bicycles available for the U.S. market, Americans are now willing to pay much higher prices and don’t much even question any additional cost from the China tariffs.

Trump’s tariffs — like so many other trade barriers — make it harder for supply to meet demand. But with enough time, companies in the supply chain can learn to adapt to the new normal where the tariffs have become just another tax to be factored into the cost of goods purchased or sold. Like taxes on cigarettes, soda and plastic bags, the China tariffs can be viewed as a tax to discourage consumption of Chinese goods.  Many may complain that such taxes are not fair or effective, but nonetheless will still pay for these products because though inconvenient or annoying, the costs are not large enough to outweigh their perceived need for those products.  The new normal including all the Trump tariffs may be less than ideal, but trade marches on.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.