2 Years Since Trade Deal with China, Tariffs Aren't Working for American Businesses The deal was supposed to be a boon to American business and industry as China stepped up its purchases of U.S.-made goods. Two years on, the reality looks different.
By Dan Digre Edited by Sean Strain
Opinions expressed by Entrepreneur contributors are their own.
The start of 2022 marked an important anniversary for the U.S. relationship with China, with two years having passed since the Trump administration's signature Phase One Trade Deal. At the time, former President Donald Trump called it a "momentous step" that would lead toward a "future of fair and reciprocal trade." The deal, it was claimed, would be a boon to American business and industry as China stepped up its purchases of U.S.-made goods.
Two years on, however, the reality looks different.
In fact, data from the Peterson Institute for International Economics shows that since the trade deal took effect, China has fallen notably short of its purchasing commitments in key sectors like manufacturing, agriculture and energy. This was reinforced when Deputy U.S. Trade Representative Sarah Bianchi recently acknowledged it is "clear" China has failed to live up to its commitments.
Given that China has fallen so far short of its commitments under the Phase One Deal, it's important for us to turn our attention to another notable milestone: the four-year anniversary of the trade war with China.
Related: This Is Why Small-Business Owners Are the Unintended Victims of the U.S.-China Trade War
How tariffs impact U.S. business owners
When the previous administration first put the tariffs in place — notably with no dissent and even with support from many in the Democratic party — it claimed that they would give the U.S. leverage in its negotiations with China, insisting that China would be ultimately responsible for paying the cost of the tariffs. However, that simply isn't true, no matter how many times some have claimed it is. The tariffs haven't been an effective way to hold China accountable; they've been an incredible burden on our economy.
Tariffs are taxes that U.S. businesses pay to the government for importing goods from overseas. They aren't paid by China; they are taxes on business owners right here in the U.S., who have been cutting massive checks to U.S. Customs and Border Protection (CBP) to import the things we need to stay in business rather than invest those funds in growth and expansion to provide jobs for our communities. The total cost to date is a staggering $123 billion and counting, paid almost entirely by U.S. businesses.
Even worse is that the tariffs, if anything, make it more difficult to manufacture products in the U.S. For example, when I import the parts I use to manufacture my business's products in the U.S., those parts are subject to a considerable 25% tariff rate. If I instead manufacture the entire product in China and then import the finished product, it is subject to just a 7.5% tariff rate. It's clear that the tariffs disincentivize domestic production of products and make U.S. production less competitive. As the CEO of a company that has manufactured its products in the U.S. for over 70 years, this is not the direction I want to see.
Related: 5 Ways to Limit the Damage to Your Business From Trump's Tariffs
It's time to apply the lessons learned
Simply put, these tariffs were hastily done with little strategy or guidance from the beginning and have been a massive and unnecessary penalty on American businesses and consumers ever since. If we want America to be able to compete on a global scale, then it doesn't make sense to hit businesses with a 25% tax on materials they need before they even get started. It undermines our ability to compete with companies abroad and weakens our economy as a result.
This year, President Joe Biden and United States Trade Representative Katherine Tai need to do everything they can to ensure the trade war finally ends before hitting its fifth anniversary. The tariffs have proven to be ineffective in leveraging China to live up to its end of the Phase One deal and have only hurt American businesses and consumers. It is time for the current administration to apply the lessons learned from the trade war, not carry on as it has been and ignore them.
Related: China Is a Problem, But Higher Tariffs Are Not the Solution
