Trump's tariff gripe valid but not his reaction, say experts

US President Donald Trump at a Make America Great Again rally in Great Falls, Montana, on Thursday. In recent months, Mr Trump has frequently criticised the stark disparity in tariffs imposed on US goods in several countries and their much lower corr
US President Donald Trump at a Make America Great Again rally in Great Falls, Montana, on Thursday. In recent months, Mr Trump has frequently criticised the stark disparity in tariffs imposed on US goods in several countries and their much lower corresponding ones in the US.PHOTO: REUTERS

They agree US faces unequal trade practices, but say higher tariffs will hurt global economy

President Donald Trump is justified, to some extent, in feeling aggrieved at unfair trade practices against the United States, but the manner of his protest through imposing higher tariffs is damaging to the global economy, say trade experts.

"Almost all countries have some sectors that, for various reasons, politicians may be keen to grant special treatment or protection to," said Associate Professor Davin Chor of Dartmouth College's Tuck School of Business.

But he was against unilateral measures to resolve problems.

He said: "By citing the use of such measures by other countries as a reason for the US to raise tariffs itself, this descends into a dangerous game of tit-for-tat.

"It is much better these issues be resolved at the negotiating table."

McLarty Associates senior adviser Steven Okun said Mr Trump was short-sighted in how he has dealt with the issue. He said: "The US has some of the lowest tariffs in the world and President Trump is correct to be working towards lowering tariffs on US exports.

"But that should be only a small part of his trade agenda... Raising US tariffs as the means to reduce other countries' tariff and non-tariff barriers is short-sighted at best."

In recent months, the President has frequently criticised the stark disparity in tariffs imposed on US goods in several countries and their much lower corresponding ones in the US. India's 100 per cent tariff on motorcycles was highlighted, as well as Canada's 270 per cent tariff on dairy products. Europe and China were singled out for their 10 per cent and 25 per cent tariffs on certain American cars - four and 10 times higher than the 2.5 per cent imposed on foreign cars by the US.

Even the freest of markets impose tariffs - which are taxes on foreign products - to make buying local the cheaper option.

Canadians, for example, buying imported milk, cheese and butter will pay more than if they choose locally produced dairy products, and Chinese consumers find imported cars pricier than local ones.

Experts say the unequal tariffs Mr Trump has publicly bemoaned are mostly accurate, but the figures leave out the fine print and do not give the full picture of America's trade relationship with its partners.

The US, for instance, sells far more in value of certain goods to some of its trading partners than it buys from them. America's tariffs are on average among the lowest in the world, and certainly lower than Chinese and Indian tariffs, a World Bank analysis of the latest data from 2016 shows.

The US imposes tariffs of 2.8 per cent on average on imported goods.

In contrast, foreign products entering China face an average tariff of 4.3 per cent, and those entering India are charged 7.6 per cent.

Canada and the European Union's average tariff sits slightly higher than America's at 3.2 per cent.

But these are averages. Zoom in and the tariffs vary wildly by product categories, and by specific goods within them.

Canada charges a whopping 249 per cent average tariff on foreign dairy products, far outstripping America's 16.6 per cent on dairy products from abroad.

Under Canada's supply management system, these sky-high tariffs are imposed on dairy imports that exceed the fixed quota for the year.

Liquid milk is charged 241 per cent, cheese 245.5 per cent, cream 292.5 per cent and butter 298.5 per cent, figures on Canada Border Services Agency's website show.

The system aims to prevent oversupply and protect Canada's US$19 billion (S$25.9 billion) dairy industry. But the US has found a way to beat the system. The independent fact-checking website Politifact says that US dairy exporters have been exploiting a loophole by exporting a new form of ultra-filtered milk that falls outside Canada's Customs regime, duty-free. As a result, the US exports more dairy to Canada than it imports.

In 2016, the US exported US$631.6 million in dairy products to Canada, far more than the US$113 million it imports from Canada.

In any case, Canada's dairy product tariffs are an outlier. World Trade Organisation (WTO) data shows that its next-highest average tariffs last year were 23.5 per cent on animal products, 20.5 per cent on cereal products like muesli, and 16.5 per cent on clothing.

India, which generally has higher tariffs on imported goods, slashed its 100 per cent tariff on large American motorcycles to 50 per cent in February after Mr Trump's protest. Data from the Singapore-based International Trade Centre showed that last year, the US collected zero tariffs on the US$14.2 million worth of motorcycles imported from India, while India collected US$1.2 million in tariffs on the US$1.2 million of American motorcycles it imported.

The US similarly exports far more in cars to China than it imports, and therefore pays more in tariffs to China than it collects. Last year, China exported US$1.67 billion worth of cars to the US, on which it paid US$33 million in tariffs. The US exported US$10.6 billion worth of cars to China, and paid US$2.65 billion in tariffs.

Mr Trump so far has not singled out his country's other top trading partners Japan and South Korea for their high tariffs on US goods, even though they are on the books.

International Trade Centre data shows South Korea has a 228 per cent tariff on US seeds, fruits and miscellaneous grains, compared to America's corresponding 1 per cent tariff on the same Korean goods.

The US exports almost 30 times the value of these seeds, fruits and grains to the South Koreans as it imports from them.

Japan levies a 70 per cent tariff on US dairy produce, eggs and honey, even though its own products face a corresponding 15 per cent US tariff.

The US itself imposes relatively high tariffs on some foreign products to protect its own industries.

Mr Okun noted that as part of the Trump administration's renegotiation of the US-South Korea Free Trade Agreement, the US extended its 25 per cent tariffs on South Korean light trucks from 2021 till 2041.

Mr Okun believes Washington should not be waging a unilateral trade war against multiple trading partners focused on tariffs. Instead, he said, it should be taking a broader look at eliminating the many other ways countries protect their industries, including through subsidies and discriminatory rules for companies in certain sectors.

A version of this article appeared in the print edition of The Straits Times on July 07, 2018, with the headline 'Trump's tariff gripe valid but not his reaction, say experts'. Print Edition | Subscribe