PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Proposed Tariffs on Chinese Imports and the Impact on U.S. Small Businesses

By at 18 May, 2018, 1:55 pm

by Raymond J. Keating-

On Wednesday, May 16, I had the opportunity to testify at a United States Trade Representative hearing on “Proposed Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.” Specifically, the USTR sought comments on proposed tariffs on some $50 billion in annual imports from China.

The striking takeaway clearly was how proposed tariffs on Chinese goods would undermine the competitiveness of U.S. businesses and their employees.

Among the various points highlighted in my testimony, I noted the prominent role that U.S. small businesses play in terms of both exports to and imports from China; and key points on why free trade is a big plus for entrepreneurs, small businesses, workers, consumers and the overall U.S. economy.

I also pointed out that “more than 55 percent of all U.S. goods imports in 2017 were inputs for U.S. businesses, that is, they were intermediate goods or capital goods. So, increasing tariffs or establishing quotas on imports is in effect imposing a tax increase on a wide array of U.S. small businesses, such as manufacturers.”

That’s a critical issue to keep in mind when policymakers try to sell protectionist measures as being good for U.S. businesses, whether it be these particular tariffs or, for example, tariffs or quotas on steel and aluminum imports. Hiking the costs of inputs for U.S. businesses of all types and sizes obviously is a clear negative for those businesses and their workers. These businesses then become non-competitive in domestic and international markets.

This point was driven home by numerous other witnesses at the USTR hearing. Representatives from assorted enterprises spoke about how tariffs on a variety of goods from China would raise their costs significantly, including presenting daunting challenges of realigning supply chains or even being unable to find alternatives from other suppliers. The clear message was that these businesses would suffer lost business and competitiveness.

No doubt, the rebuttal to these comments and other points raised against tariffs will be along the lines of: “Well, what else can we do about China’s unfair trade practices, such as failing to protect intellectual property?”

I pointed to a far more productive path in my summary remarks:

“Rather than imposing tariffs and quotas that will only hurt U.S. consumers and small businesses, the U.S. needs to re-engage as a global leader for free trade, and in doing so, serve as an example for China. 

“Specifically, rather than playing tit-for-tat protectionism, the U.S. would be far better off in standing up clearly for free markets, free trade and property rights, and showing other countries, like China, what the real path to economic growth is. It is critical, and far more constructive, to make clear to China that its intellectual property violations only serve to undermine its own investment and economic growth.

“In fact, the best path forward would be to enter into discussions laying groundwork for a China-U.S. free trade agreement. Through that process, the U.S. would be able to constructively advance the cause for open markets and property rights in China. A free trade accord between the world’s two largest economies would expand opportunities for entrepreneurs, small businesses and workers in both nations.

“In the end, these proposed tariffs on imports from China ‘would cause disproportionate economic harm to U.S. interests, including small- or medium-size businesses and consumers.’ The U.S. should step back from this proposal for increased tariffs, and instead, engage with China in a productive way through, if necessary, a multi-year effort of agreements that make real progress in reducing trade barriers and enhancing property rights, with the ultimate goal, again, being a China-U.S. free trade agreement. Such an effort would generate confidence among entrepreneurs, businesses, investors and in the markets, and generate significant benefits and opportunities for U.S. small businesses, workers and consumers.”

Just because China, at the moment, is choosing a counter-productive policy path for its own people does not mean the U.S. should respond with policies that ultimately inflict harm on U.S. small businesses, workers and consumers. Free trade leadership is needed now more than ever, not misguided, destructive protectionism.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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