Economic Concerns Remain for New Tranche of Section 301 Tariffs

Trade Partnership Worldwide President Laura Baughman stands by her organization’s February survey report that found levying Section 301 tariffs on all remaining $300 billion in Chinese imports in addition to other sanctions in effect would cause severe U.S. economic harm, she said in an email. President Donald Trump's chief economic adviser Larry Kudlow, in a Fox News Sunday appearance May 12, called the study flawed. He tried to make the case that any economic "consequences" would be "modest" and well worth it.

Imposing new Section 301 duties on all remaining Chinese goods, coupled with those already in effect, plus retaliatory tariffs from China and the Section 232 tariffs on steel and aluminum, would cause a 1.01 percent annual hit to U.S. GDP, according to that Trade Partnership report compiled for the Tariffs Hurt the Heartland campaign. The research also found the tariffs and retaliatory duties would reduce the annual spending power of the average family of four by nearly $2,300 and risk a “one-time net impact” of nearly 2.2 million lost jobs.

The Trump administration’s own research found those are “pretty wildly exaggerated numbers,” National Economic Council Director Kudlow said during the Fox News program. “I would suggest if you go the whole boat” on tariffs, “we reckon it would be two tenths of 1 percent of GDP, so it’s a very modest number,” he said. “We have a $20 trillion GDP. In terms of possible job losses, we’re way, way below that job number.”

Any hit to the U.S. economy would be well worth the cost to curb China’s allegedly bad trade behavior, Kudlow said. “You gotta do what you gotta do,” he said. “We have had unfair trading practices all these years, and so in my judgment, the economic consequences are so small, but the possible improvement in trade and exports and open markets for the United States, this is worthwhile doing.”

When host Chris Wallace confronted Kudlow that Trump’s statements are “not true” when he says the Chinese pay the tariffs and not U.S. businesses and consumers, Kudlow said: “Fair enough. In fact both sides will pay. The Chinese will suffer GDP losses and so forth with respect to a diminishing export market.” On Wallace’s challenge that U.S. businesses and consumers pay the higher tariffs as taxes on imported Chinese goods, Kudlow replied: “Yes, to some extent. I don’t disagree with that.”

So Kudlow “agrees the tariffs will have a negative impact on the US economy,” emailed the Trade Partnership’s Baughman, challenging Kudlow to release his methodology showing why the economic hit won't be so bad. “Without seeing how he baked his cake to get to ‘de minimis,’ I can't comment on the size of his negative impacts.”

In her group’s February study, “I can say that we took a careful, balanced approach, capturing gains and losses and the comprehensive potential impacts of the tariffs,” Baughman said. The study “structured the model to match as nearly as possible the current state of the US economy,” she said.

The Trade Partnership’s “approach” and methodology are “described publicly,” Baughman said. “The administration should release its study so we can see the cake's ingredients.” The White House didn’t comment. The model in the Trade Partnership study simulated the "percentage changes in aggregate economic measures, including U.S. real GDP and aggregate employment," that would result from the imposition of tariffs, the report's "methodology in detail" section said. The estimates on "net" employment impact "take into account potential increases as well as decreases in employment as demand increases in some cases for U.S. products, and declines in others."