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POLICY BRIEF FROM AMERICANS FOR TAX REFORM

Trade with China Benefits American Taxpayers

By: Michael Kamburowski
May 18, 2000

Americans For Tax Reform supports permanent normal trade relations with China (PNTR).  Normalized trade relations with China will benefit American businesses and farmers by allowing them to take advantage of trade concessions that will increase access to Chinese markets for American products and services.  PNTR will also benefit American consumers, who will enjoy reduced prices for a variety of imported goods.

The United States concluded a comprehensive market access agreement with China in November, 1999.  This agreement is a prerequisite for China’s entry into the World Trade Organization (WTO).  China’s entry into the WTO is not dependent on PNTR.  A “yes” vote on PNTR simply allows American exporters and consumers to reap the benefits of the bilateral trade agreement already signed by the United States and China.

Tariffs and other barriers to trade are, in the final analysis, taxes.  Tariffs imposed on imports here in the United States mean that American consumers and businesses are forced to pay higher prices for imported goods and services.  Tariffs imposed at home encourage retaliatory tariffs on U.S. products abroad, making such products less competitive in foreign markets.

A “yes” vote on PNTR will allow reductions in tariffs on U.S. goods and services entering China.  A study released this week by the General Accounting Office (GAO), shows that U.S. workers and businesses will save over $1 billion annually in reduced tariffs and quotas on the products they export to China.

Under the terms of the agreement reached last year, the following tariffs will fall:

  • Industrial tariffs will fall from an average of 24.6 percent today to 9.4 percent by 2005.
  • Tariffs on U.S. products such as capital and medical equipment will fall to 7.1 percent. This is a tariff rate comparable to that of most major US trading partners.
  • All tariffs on computers, semiconductors and telecommunications will be reduced to zero from the current average of 13.3 percent.
  • Tariffs on automobiles will be reduced from current levels of 80 to 100 percent to 25 percent by 2006. Tariffs on auto parts will fall from 23 percent to an average rate of 10 percent.  Import quotas on autos will be eliminated by 2005.
  • Overall tariffs for US priority agricultural products will be reduced from the current level of 31.5 to 14.5 percent by 2004.

As a consequence of these tariff reductions, U.S. exports to China are expected to grow significantly by 2005:

      • $7.9 billion in export growth will come from tariff cuts
      • $2.4-$3.6 billion will come from reductions in non-tariff barriers
      • $2.4 billion will come from increased U.S. investment in China

Source: Charles Hanrahan and Wayne M. Morrison, Memorandum to the House Committee on Ways and Means, Subcommittee on Trade,  Congressional Research Service, February 14, 2000.

If Congress fails to approve PNTR, it will leave open the option of not renewing normal trade relations with China in the future.  If that ever happens, U.S.-China trade relations will be governed by the Smoot-Hawley Tariff Act of 1930.  Under the Act, tariffs on imports would increase dramatically (see table below -- full duty rates).  This will mean dramatically higher prices for a wide range of popular goods now enjoyed by American consumers.

Michael Kamburowski was Vice President, Legislative Affairs. He has now left the organization. Anyone wishing to disucuss this issue, please contact ATR.