Tax Foundation Study Projects Significant Economic Losses due to Section 301 Tariffs on Mainland China

Projections released on 28 November by the Tax Foundation, a non-partisan educational organisation that works with policymakers on both sides of the aisle, suggest that the Section 301 tariffs that the Trump administration has imposed on some US$250 billion worth of imports from mainland China will have a visibly negative effect on U.S. economic output, incomes and employment. Moreover, the negative impact would more than double if an additional 25 percent tariff is imposed on a third tranche of products worth US$267 billion.

Using its taxes and growth model, the Tax Foundation estimates that the current tariffs on some US$250 billion worth of mainland Chinese goods will reduce long-run U.S. GDP by 0.1 percent or about US$23.58 billion, U.S. wages by 0.06 percent and full-time equivalent U.S. jobs by 73,000. The scheduled increase from 10 percent currently to 25 percent as of 1 January 2019 of the additional tariff on the second tranche of mainland Chinese products worth some US$200 billion is expected to reduce long-run GDP by an additional 0.09 percent or US$21.77 billion, U.S. wages by an additional 0.06 percent and U.S. employment by an extra 67,000.

Moreover, if the Trump administration were to impose a ten percent tariff on a third tranche of mainland Chinese products worth some US$267 billion, long-run U.S. GDP would be reduced by 0.08 percent or US$19.37 billion, U.S. wages would fall by 0.05 percent and 60,000 U.S. jobs would be lost. If a 25 percent tariff were imposed on these products, long-run GDP would ostensibly be reduced by 0.19 percent or US$48.43 billion, wages would fall by 0.12 percent and 150,000 U.S. jobs would be lost.

In light of these findings, the Tax Foundation concludes that “whether tariffs actually result in changes to China’s trading practices – evidence casts doubt on the effectiveness of such a strategy – these tariffs are harming American consumers and businesses right now.” The Tax Foundation adds that “tariffs will reduce U.S. economic output, incomes, and employment opportunities, while likely failing to achieve policy goals.”