The following is a memo I wrote as a recommendation to the United States Trade Representative (at the time) for my Public Policy Process class at Georgetown University during the Fall of 2019 with Professor Lynn Ross acting as a representative of the Advisory Committee for Trade Policy and Negotiations.

Memorandum

To: Robert E. Lighthizer, United States Trade Representative
From: Digvijay Ghotane, Research Assistant, Georgetown University, Advisory Committee for Trade Policy and Negotiations
Date: 12 November, 2019
Subject: Tariffs on China: A Bad Deal for America - Analysis and Conclusion

Recommendation

For the upcoming high-level meetings, I strongly recommend advocating for relaxed tariffs on imports from China. This is crucial due to concerns over potential retaliation, especially affecting US exports, notably agricultural products, and the burden imposed on American consumers. These concerns outweigh those related to the trade deficit^[1].

Introduction

President Trump^[2] in 2018, introduced increased^[3] import tariffs on China along with other countries^[4]. Firstly, let's understand that tariffs, in general, create deadweight losses in the economy, which means that there may have been more transactions in the economy but due to the presence of tariffs, the number of transactions drops along with a hike in the price and reduction in the amount of traded goods and services. This price hike is usually borne by the consumer, in this case, the general American population. A policy brief by The Trade Partnership (hereinafter referred to as “the policy paper”) assesses the estimated impact of steel and aluminum tariffs^[5]. It estimated that even though the tariffs would create around 26,000 jobs in the steel or aluminum industry, there will be a loss of about 430,000 jobs elsewhere in the US markets because of this^[6]. The paper also noted that these tariffs alone would reduce US GDP by 0.2% in the short term^[7].

The paper further assesses that job losses are notable in the agricultural sector with an estimated loss of 6,782 jobs. This is an effect of the compensation sought by China and other countries with added tariffs on US exports in opposition to the tariffs put by the US on the import of steel and aluminum. In 2018, export growth was hampered as predicted by the paper^[8]. Agricultural exports amounted to 140 billion USD in 2018. This was a mere 1% increase from 2017, which produced a trade surplus of 10.9 billion USD which has been the smallest surplus since 2006^[9]. This is the combined effect of increasing imports but decreasing exports.

The paper further noted that the services sector is impacted most by the tariffs. This is primarily due to the effect on the agricultural industry as explained before, along with the manufacturing industry at large, notably in steel-consuming sectors. To put this into perspective, even though higher tariffs mean more employment in the raw-material industry, a nail factory whose raw material is steel, their cost would go up which in turn will not only lead to lower wages being paid to the workers but also lead to them being laid off. Also with the tariffs in place, companies that use raw materials that are taxed heavily would want to move to other countries where they may not be highly taxed, the labor force is cheaper, and where they can export their goods or services without worrying about a counter-tariff in retaliation to US tariffs, which would further cripple the economy and lead to unemployment. This would in turn lead to what the labor union AFL-CIO^[10] is worried about.

Current Stand

One of the arguments given by the current Administration is US trade deficits^[11]. The US had a trade deficit of Economists have argued that trade deficits are a good thing for the economy. Since trade deficits are measured by the difference in the total imports and exports, a deficit implies that the imports are more than the exports which translates to the American population having an expendable income to spend on goods and services that are imported. Furthermore, due to the presence of the tariffs, US exports and imports to/from China have declined in 2019^[12]. This can be attributed to a scenario in the economy when trade deficits shrink due to the economy not doing so well.

The other concern of the administration is threats to manufacturing jobs. The trade deficit also creates unemployment since people are buying imported goods and services over nationalized goods. But this effect is very small compared to the effect of tariffs. One major cause of this unemployment is the employment of automation in manufacturing industries, which is completely uncorrelated with the trade deficit.

Conclusion

All in all, the tariffs are bad for the American economy at large owing to multiple reasons explained above. There is going to be a rise in unemployment due to the tariffs and their ripple effects, harming the economy in the long run due to lower imports and exports. The Liberty^[13] of the free market is at risk with such an intervention. The best way to go about this would be to negotiate a trade deal with China such that exports are not hampered and there is the least possible unemployment, while also keeping a check on the imports by assessing their impact on local businesses. I believe this would be instrumental in shaping the policy, but since the administration is of the opposing view, I believe you should undertake a more policy-entrepreneur stance where you soften-up the administration, by gaining consensus, to the idea of relaxing tariffs on China, by providing them with these figures^[14].

References

1. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 94, para. 2 - Kingdon speaks about indicators, in specific their interpretation. The president of the US interpreted that the huge trade deficit is a concern to the US economy. But, one should keep in mind that indicators are not simply a recognition of facts but the interpretation of indicators matter, according to Kingdon.
   
   Deborah Stone, “Policy Paradox, The Art of Political Decision Making, Revised Edition,” pg. 309, para. 4 - Stone talks about how facts do not exist independent of interpretative lenses, similar to what Kingdon says, and that I believe holds true in this case where the words and numbers that facts appear as are interpreted in a certain way and presented as facts.
   
   Deborah Stone, “Policy Paradox, The Art of Political Decision Making, Revised Edition,” pg. 157, para. 2 - Stone speaks of ambiguity in symbols and how a symbol can mean more than one thing. Stone says that it can literally mean different things for different people. For example, in this case, trade deficit for Donald Trump is a bad thing, but a lot of economists have said that it is an indicator of a healthy economy and that the American people have the purchasing power to actually purchase so many imported goods.
2. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 23, para. 2 - Donald Trump is a very good example of a policy entrepreneur. He's said in the past about how good he's good with 'trade wars' and has solutions for them. I believe that him being a businessman would benefit him in the future with regard to tariffs which has been highlighted by Kingdon under the words, “promotion of personal interests.”
3. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 79, para. 2 - This can be treated as a case of incrementalism since this policy changes the value of the tariffs and quantity of imported goods and services without actually changing any other trade policy at large. This can an example of a small incremental change in policy as defined by Kingdon.
4. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 23, para. 2 - Kingdon says that no one in the political system has the capability of setting the agenda as much as the president does, and this is reflected in how the president's personal agenda that was politicized as a 'trade war' during the election campaign became prominent and one of the items on his agenda after he became president.
   
   John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 166, para. 2 - Kingdon talks about policy windows and I believe that the president already had his 'pet' solutions ready, wherein the policy window for him was becoming president of the United States and then implementing policies by projecting conditions as problems.
5. Dr. Joseph Francois, Laura M. Baughman and Daniel Anthony, “Round 3: 'Trade Discussion' or 'Trade War'? The Estimated Impacts of Tariffs on Steel and Aluminum,” The Trade Partnership, June 5, 2018, https://tradepartnership.com/wp-content/uploads/2018/06/232RetaliationPolicyBriefJune5.pdf
6. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 77, para. 4 - Kingdon speaks about how rational decision making should ideally be followed with set goals and alternative specifications to find the best possible solution to these goals, but reality is far from this and this is a great example of Kingdon's analogy about rational decision making. This policy is not solving problems at all, since the problems are not being identified.
   
   Deborah Stone, “Policy Paradox, The Art of Political Decision Making, Revised Edition,” pg. 233, para. 2 - Stone talks about how decision making is a 4 step process, but I believe that here president Trump has only defined his goal of reducing deficit, but failed to evaluate the overall consequences of all the policies that may have led to the same.
7. Dr. Joseph Francois, Laura M. Baughman and Daniel Anthony, “Round 3: ‘Trade Discussion’ or ‘Trade War’? The Estimated Impacts of Tariffs on Steel and Aluminum,” The Trade Partnership, June 5, 2018, pg. 2, https://tradepartnership.com/wp-content/uploads/2018/06/232RetaliationPolicyBriefJune5.pdf
8. Dr. Joseph Francois, Laura M. Baughman and Daniel Anthony, “Round 3: ‘Trade Discussion’ or ‘Trade War’? The Estimated Impacts of Tariffs on Steel and Aluminum,” The Trade Partnership, June 5, 2018, pg. 2, https://tradepartnership.com/wp-content/uploads/2018/06/232RetaliationPolicyBriefJune5.pdf
9. “U.S. trade surplus smallest since 2007,” April 22, 2019, https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58310
10. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 49, para. 3 - Interest group pressure is something that influences the agenda according to Kingdon and is very important in agenda setting, in this case, AFL-CIO a union group has lobbied the Congress with regard to implementation of the trade policies.
11. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 109, para. 3 - Kingdon talks about the difference between a condition and a problem. I believe that this is a prime example where a condition is being made look like a problem. Economists say that having a trade deficit does not indicate a bad thing, in fact it indicates that people have more purchasing power which is creating the deficit. Hence, I believe that the condition of having a deficit is being made to look like a problem when it isn’t really anything other than a condition
12. Lucia Mutikani, “U.S. trade deficit shrinks, gap with China remains elevated,” September 4, 2019, https://www.reuters.com/article/us-usa-economy-trade/u-s-trade-deficit-shrinks-gap-with-china-remains-elevated-idUSKCN1VP1NT
13. Deborah Stone, “Policy Paradox, The Art of Political Decision Making, Revised Edition,” pg. 108, para. 1 - According to Stone, the only time the government can exercise power rightfully is to prevent harm to others, and in this case one of the goals, the liberty of the free market is being attacked since it is believed that current trade policies are leading to unemployment and national deficit and that needs to be changed since they’re harming people.
14. John W. Kingdon, “Agendas, Alternatives, and Public Policies, Second Edition,” with new foreword by James A. Thurber, pg. 127, para. 4 - Kingdon speaks about pushing ideas into many different forums to soften-up people to policy changes, and when there is a policy window to act, you would also have a consensus, according to Kingdon.