What the Latest Trade Data Tells Us About Tariffs
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by Charles Benoit
U.S. Customs and Border Protection (CBP) is the agency with ‘boots on the ground’ when it comes to international trade, and each year they publish their “Trade and Travel Report”.
Looking to this latest report, we learn that in its FY2022, “CBP processed 39.1 million ‘entries’ (read: a shipment of merchandise imported into U.S. commerce) valued at over $3.35 trillion. This represented an alarming 19.46 percent increase from CBP’s FY2021.
On that $3.35 trillion of imports, CBP “collected approximately $104.6 billion in duties, a 22.4 percent increase over FY2021.” This is a decent chunk of change even for the U.S. federal government.
Tariff revenue now exceeds the combined $44 billion Americans pay collectively in gas tax plus the $39.6 billion the bottom half of American individual income tax filers remitted.
This is a new phenomenon. Compare to CBP’s FY2017, when the agency collected only $34.8 billion on 33.2 million entries valued at $2.39 trillion.
The value of imports increased by 40.1 percent over the last five years, yet tariff collection is up an impressive 200.5 percent.
What’s the main driver of outsized tariff revenue growth? President Trump’s China tariffs, which accounted for $49 billion of the $104.6 billion in FY2022.
President Trump’s China tariffs earn far more than the roughly $30 billion in tariffs CBP collects on the trillions of dollars of imports entering under our default ‘Normal Trade Relations’ tariff schedule.
And Trump’s China tariffs were modest. The tariff action applied an additional 25 percent tariff on 6,830 product categories, and separately an additional 7.5 percent tariff on another 3,207 product categories from China.
Roughly speaking, if you average it out since the China tariffs started in 2018, a bit more than one-third of what China exports to us in a given month is subject to these additional tariffs.
Cell phones, laptops, and thousands of other Made-in-China goods continue to enter duty-free.
Takeaway Number 1: Trump’s China tariffs were a very worthwhile revenue tariff.
The China tariffs did lead to some sourcing leaving China – which is good for ‘resilient supply chains’ – but it was mostly a good old fashioned revenue tariff, paid from the margin of Made-in-China producers. As noted above, they alone dwarf the income tax for the bottom half of payers, and exceed all gas tax. Keep that in mind next time someone tries to lecture you about ‘regressive’ tariffs. What’s more regressive than taking money directly out of a low-income working American’s paycheck or at the pump?
Takeaway Number 2: The Need for Political Leadership
Nothing like President Trump’s China tariffs has been seen in many decades. What made them so special was that instead of a private business or industry sector acting as tariff petitioner in some micro tariff enforcement action, President Trump and his trade chief, U.S. Trade Representative Ambassador Lighthizer, were in the driver’s seat, set out for broad-based economic change.
Since the Presidential tariff era began in 1934, only three other broad tariff actions have been taken with political leadership: Eisenhower’s 1951 tariffs against Soviet countries (supported by Congress), LBJ’s 1963 Proclamation which raised global tariffs on various products in response to a dispute with Europe, and Nixon’s short lived 1971 Proclamation for a balance-of-payments global tariff.
Then along comes President Trump, and in addition to the China tariff action, we get a positive global tariff action on steel and aluminium and solar as well, and a wildly successful global tariff on washing machines forcing Samsung and LG to build factories domestically. So when President Trump tweeted “I am a Tariff Man”, it was an honor well-earned and deserved.
Even President Trump’s solar and washing machine tariffs were done via Section 201 of the Trade Act of 1974, a statute that relies on Presidential judgment and thus had been abandoned in the twenty-first century.
Aside from the above-mentioned tariff actions, virtually everything else since 1934 has consisted of one of the following:
Anti-Dumping (AD) and Countervailing Duties (CVD), which are non-political tariff actions adjudicated by the independent U.S. International Trade Commission.
Retaliatory tariff actions authorized by the World Trade Organization, which are quite rare.
AD/CVDs have been around for a long time, and both are authorized ‘trade remedies’. AD actions, derived from antitrust law, offset predatory ‘dumping’ (selling below cost), and CVDs offset foreign government subsidies. They are known as ‘remedies’ because they are designed to fit the logic of our global rules-based trade regime built on the academic notion of ‘comparative advantage’. It’s all a farce, of course, but if we are going to subject ourselves to this global rules regime, then AD/CVD are a necessary component.
The problem is, they have never amounted to much. Our AD law is now 102 years old yet, it has never been relevant to the smallest sliver of the economy. CBP reports that there were 662 AD/CVD in effect at the conclusion of FY2022. That might sound like a lot, but it is next to nothing. A single AD/CVD action typically results in several or more ‘orders’.
For example, the AD/CVD action on steel nails resulted in 5 AD orders (different orders cover companies from different companies) and a sixth CVD order covering Vietnam only.
Second, “steel nails” sounds like a very specific product, right? Yes, and they are almost all like that. So cut 662 by at least a third to cover re-counting, and we are left with maybe a couple hundred product categories at the 8-digit tariff threshold. Consider that there are over 30,000 8-digit product categories. AD/CVDs have never affected close to a single percentage of our total imports.
Worse yet, the biggest concentration of these product categories is manufacturing inputs in the metals space, so AD/CVDs have largely earned scorn from finished goods manufacturers still trying to make things in America. They give tariffs a bad name among many manufacturers who find their inputs price shoot-up without any corresponding protection for their own products. It makes no sense to impose tariffs on Chinese steel if you’re going to let cars and appliances from China enter duty-free.
Takeaway Number 3: ‘Toughening’ trade enforcement laws will get us nowhere. Just legislate the outcome we need.
For all our lifetimes, AD/CVD law has been modified, strengthened and weakened but never becoming relevant to more than a tight cadre of users.
The biggest “win” on AD legislation in its 100+ years was in 1980, when the function was taken from Treasury and given to Commerce. That didn’t move the needle.
But talking about AD/CVD reform is what has gripped sympathetic legislatures for all our lifetimes. Think of all the well-meaning legislators who genuinely want to defend domestic production but get sold on an AD/CVD modification as the help they should deliver.
So what can be done?
Members of Congress should get comfortable legislating the tariff outcomes they want. Legislating tariffs offers wonderful and pragmatic policy tools that are unavailable under the global trade rules regime. For example, while the vast majority of solar power equipment is currently imported, the Inflation Reduction Act offers generous subsidies seeking to bring a lot of that manufacturing back. Why not legislate a phase-in tariff now, perhaps 10 percent per year from 2025 to 2030? Such a phased-in tariff would super-charge private investment, a no-cost leveraging of existing subsidies. No trade remedy mechanism offers a phase-in.
We can also look to existing tariff programs that have somehow survived the last ninety years. Take peanuts and peanut-butter. We do not make enough to satisfy domestic demand, but we want to offer certainty and sustainability for domestic producers. The consistently successful, nearly century old solution has been a tariff rate quota. Essentially, we maintain a prohibitive default tariff, but each year the USDA and USTR work together to allocate a fixed quota (measured in kilograms) of peanut imports that can be entered under a low duty. This allows us to also provide stable consumer pricing and deal with any supply shocks. Frankly, all agricultural commodities should be governed through similar tariff rate quota programs.
With any luck, in the 118th Congress, we will see this glass ceiling shattered as more Members discover the benefits of tariffs for both revenue and protection.
This article is part of the American System project edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors and the views expressed are not necessarily those of their employers.
Charles Benoit is Trade Counsel for the Coalition for a Prosperous America.