Newspaper article International Herald Tribune

U.S. Workers Paid Price for China Tariffs, Study Finds

Newspaper article International Herald Tribune

U.S. Workers Paid Price for China Tariffs, Study Finds

Article excerpt

After the U.S. Congress passed trade legislation that fixed the level of tariffs on imports from China, removing uncertainty about the tariffs, U.S. executives responded by moving production to Asia.

When people argue that uncertainty about taxation and regulation is freezing corporate decision-making, they are generally arguing that more certainty would be a good thing for the economy. The idea, deemed so self-evident that it sometimes is left unspoken, is that companies are hesitating to invest in the United States.

But an interesting study flips this assertion on its head. The study found that manufacturing employment in the United States declined sharply as a direct result of a government decision in 2000 to fix in place the level of tariffs on imports from China.

The level of tariffs had remained constant for years, but only because the U.S. Congress acted each year to extend the status quo.

Without that annual vote, the tariffs on many products from China would have increased, in some cases quite sharply. Then in 2000, Congress granted "permanent normal trade relations" to China. The legislation mostly left the existing tariffs unchanged. What it eliminated was uncertainty about the next year.

The result was a burst of corporate decision-making. Newly confident that tariffs on imports would not increase, executives responded by firing workers in the United States and moving production to Asia.

The effect was huge, according to the paper, by Justin R. Pierce, an economist with the U.S. Federal Reserve, and Peter K. Schott, a professor at the Yale School of Management.

"Absent the shift in U.S. policy, U.S. manufacturing employment would have risen nearly 10 percent between 2001 and 2007, versus an actual decline of more than 15 percent," they wrote -- a difference of about four million manufacturing jobs. …

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