Peterson Institute Study Finds Non-Chinese Firms Hit Harder by Section 301 Tariffs

Most of the computer, aviation and automotive, electrical and machinery products that will be hit by tariffs under Section 301 are produced by foreign companies operating in China, according to an updated study from the Peterson Institute for International Economics. The think tank says it aims to do "truth telling about the benefits of globalization" as well as study labor market adjustment due to globalization and how to find a sustainable growth model for mature economies.

The study, updated on June 18, says that while foreign multinationals accounted for 60 percent of Chinese imports to the U.S., categories that are strongly represented on the tariff list are even more likely to originate in U.S., Taiwanese, Japanese or European companies operating in China. In the computer category, 87 percent are not from Chinese firms; in aviation and automotive parts and vehicles, 65 percent are not from Chinese-owned firms.

Syracuse Economics Professor Mary Lovely, a scholar at Peterson, wrote, "That the tariffs fail to hurt Chinese firms directly should not be a surprise. There remains an enormous knowledge gap between China and the United States, even if this gap is closing. Indeed, without this gap, allegations of technology misappropriation and theft would make no sense."

While Lovely characterizes the tariffs as an "own goal," slang for saying you scored against yourself instead of your opponent, the U.S. trade representative has said repeatedly that he does not believe what's good for GM is good for America. U.S. Trade Representative Robert Lighthizer says he wants to change the administration's trade policy so that U.S. firms have disincentives to move production to lower-cost countries.

In the case of machinery, computers and telecommunication devices, and electrical equipment, Lovely said they rapidly relocated parts of their supply chain to China over the last 15 years. "The labor-intensive products often associated with China -- apparel, textiles, and leather products -- accounted for 26 percent of US imports in 1997 but only a much smaller share, 12 percent, by 2017," she wrote.

The study found that USTR did a good job targeting products that rely on intellectual property for their value, but Lovely writes this "does not mean that the administration’s policy will have its intended effect. In today’s world of global supply chains what matters is who ultimately pays the taxes imposed. The result is actually counterproductive for US technological competitiveness."

"Made in China 2025 remains an aspiration, not a reflection of current manufacturing prowess," she wrote. "It is impossible to hit tomorrow’s exports with today’s tariffs."