Executive Summary
- In response to the Chinese Communist Party’s well-documented human rights abuses and the significant threat it poses to U.S. national security, many in Congress and several presidential candidates have proposed revoking permanent normal trade relations (PNTR) for China.
- Revoking PNTR would mean increasing the average tariff rate for imports from China from 3.5 percent to 40 percent – a dramatically higher rate than is applied under the Section 301 tariffs that have cost Americans $190 billion since 2018.
- This research estimates that revoking PNTR would decrease U.S. gross domestic product (GDP) by $15.9 billion, decrease total exports by more than 17 percent, and increase consumer prices by 5.9 percent; in the event China retaliates in a reciprocal manner, U.S. GDP would fall by $24.8 billion, total exports would decrease by 44.3 percent, and consumer prices would rise by 5.2 percent.
Introduction
In response to the Chinese Communist Party’s well-documented human rights abuses and the significant threat it poses to U.S. national security, many in Congress and several presidential candidates have proposed revoking permanent normal trade relations (PNTR) for China. Revoking PNTR would mean dramatically increasing the average tariff rate applied to imports from China from 3.5 percent to 40 percent and would have broad consequences for the U.S. economy. Tariffs act as a sales tax on imports, a cost that is ultimately borne by American consumers. The United States currently applies extra tariffs, first imposed in 2018, ranging from 7.5 percent to 25 percent on more than $250 billion worth of imports from China. Americans have paid an extra $190 billion in tariffs on those products since the tariffs were imposed.
Using the Global Trade Analysis Project (GTAP) database and a computable general equilibrium model, this research presents the estimated effects of revoking PNTR for China. Doing so would decrease U.S. gross domestic product (GDP) by $15.9 billion, decrease total exports by more than 17 percent, and increase consumer prices by 5.9 percent. China has retaliated to past U.S. tariffs and would be expected to do so in response to the United States revoking PNTR. If China retaliated in a reciprocal manner, U.S. GDP would fall by $24.8 billion, total exports would decrease by 44.3 percent, and consumer prices would rise by 5.2 percent.
Background
The normalization of economic relations between the United States and the People’s Republic of China (PRC) dates to President Richard Nixon’s official trip to the country in 1972 and the passage of the Taiwan Relations Act in 1979, which established formal diplomatic relations with the PRC as the official government of China. In 1986, China sought to join the General Agreement on Tariffs and Trade, which would become the World Trade Organization (WTO) in 1994. China did not officially join the WTO until 2001 after negotiating its accession protocol, the list of commitments it must uphold as a WTO member in addition to the various WTO agreements.
President Bill Clinton signed H.R. 4444 – the legislation establishing PNTR with China – into law on October 10, 2000. The main purpose of the legislation was to grant China most-favored nation (MFN) status, which made imports from China subject to the same base tariff rates as other WTO members. As a result of China’s accession, average tariffs on products imported by China decreased from 17 percent to 9.8 percent between 2000 and 2005.
Since China joined the WTO, Chinese exports to the United States have increased fourfold. Top categories include electrical machinery, machinery, toys and sports equipment, furniture and bedding, and textiles. U.S. exports to China have increased sevenfold over the same period. The top export sectors to China include agriculture (primarily soybeans, pork, cotton, and corn), electrical machinery, machinery, oil and gas, and optical and medical instruments.
Trade Rules and Enforcement
Criticism over China’s accession to the WTO is on the rise. China has been found to have policies that are inconsistent with WTO rules and inconsistent with China’s ascension protocol. Indeed, the United States won 100 percent of its cases against China at the WTO between 2004 and 2018. China corrected the policy found in violation of its commitments in all but one of those cases. In other words, the WTO proved a very effective tool for confronting China and holding it accountable, and the Appellate Body played a key role as all WTO members have the right to appeal dispute decisions. Nevertheless, in 2019 the Appellate Body was rendered effectively defunct. For several years, the United States blocked new judges from being appointed to the Appellate Body and eventually there were not enough left for any appeal cases to be decided. This move directly undermined the United States’ ability to enforce trade rules with China.
Instead of addressing disputes through the WTO, the United States imposed tariffs of 25 percent on roughly $50 billion worth of Chinese imports between July and August 2018. This action occurred after an investigation under Section 301 of the Trade Act of 1974 by the Treasury Department found that Chinese theft of U.S. intellectual property cost an estimated $50 billion annually. After several months of tit-for-tat retaliation by the United
SDGs, Targets, and Indicators
1. Which SDGs are addressed or connected to the issues highlighted in the article?
- SDG 8: Decent Work and Economic Growth
- SDG 9: Industry, Innovation, and Infrastructure
- SDG 10: Reduced Inequalities
- SDG 16: Peace, Justice, and Strong Institutions
2. What specific targets under those SDGs can be identified based on the article’s content?
- SDG 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries.
- SDG 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation, including through a focus on high-value added and labor-intensive sectors.
- SDG 9.1: Develop quality, reliable, sustainable, and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all.
- SDG 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average.
- SDG 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all.
3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
- Gross Domestic Product (GDP)
- Total exports
- Consumer prices
- Trade tariffs
- Trade deficits
- Accession protocol compliance
- WTO dispute cases and outcomes
SDGs, Targets, and Indicators Table
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 8: Decent Work and Economic Growth | 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries. | Gross Domestic Product (GDP) |
| SDG 9: Industry, Innovation, and Infrastructure | 9.1: Develop quality, reliable, sustainable, and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all. | Total exports |
| 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries. | Trade tariffs | |
| SDG 10: Reduced Inequalities | 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average. | Consumer prices |
| SDG 16: Peace, Justice, and Strong Institutions | 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all. | Accession protocol compliance, WTO dispute cases and outcomes |
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Source: americanactionforum.org
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