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US President-elect Donald Trump's promise to impose a 60% tariff on imports from China and a 10-20% tariff on all other imports has triggered a public debate about whether such policies are really so bad. After all, a tariff is a consumption tax, and most economists favour taxes on consumption over income taxes. But tariffs have significant drawbacks. Since they tax only imported products, they distort markets by shifting resources from more efficient foreign producers to less efficient domestic firms. This inefficiency comes at the expense of consumers, and like most consumption taxes, tariffs are regressive, placing a heavier burden on low-income households. Still, tariffs do have political appeal. Critics of globalisation in advanced economies have long argued that the efficiency gains from recent decades of trade liberalisation have been modest relative to the disruptions caused. While US consumers benefited from lower prices on imported goods, particularly from China, these widely dispersed gains were less salient than the concentrated pain of factory closures and job losses in regions exposed to import competition. The problem with such arguments is that they ignore the current macroeconomic context. Inflation over the last three years has increased consumer sensitivity to price changes. Voters today will be far more attuned to the inflationary pressures of tariffs than they were in the past. While proponents of new tariffs claim that China would bear the brunt of the financial burden, the evidence from the 2018-19 tariffs shows otherwise: US consumers bore most of the cost. Even if US prices remained unchanged, unintended consequences could follow. If broad-based tariffs led to a sharp depreciation of China's currency, the stronger dollar would make Chinese imports relatively cheaper. This may partly offset the higher prices caused by tariffs, but it would undermine the original goal of making US manufacturing more competitive. Meanwhile, the stronger dollar would hurt US exports, worsening the trade deficit. This suggests that the multiple goals currently advertised for tariffs -- reshoring manufacturing, reducing the trade deficit, generating revenue, lessening America's reliance on China, and forcing China into negotiations, all while minimising the impact on consumers -- often conflict with one another. This is because tariffs affect the US economy through prices. To boost US competitiveness or reduce the deficit, tariffs must raise import prices -- a politically toxic outcome today. Reducing America's reliance on China is also complex, given that Chinese-made intermediates are embedded in many goods exported to the US from third countries. Since 2018-19, China and several "bystander" countries have registered robust export growth despite tariffs. The proposed new tariffs might affect only direct Chinese exports to the US, not to other countries. The argument for tariffs as a revenue-generating mechanism is interesting and novel (in the sense that it has not been used for many centuries). But it does not hold up. Tariffs cannot possibly replace income taxes as a source of revenue: the scale of the income tax base is roughly an order of magnitude larger than the scale of imports. Still, tariffs could generate some government revenue, with China potentially bearing part of the cost. If used as a short-term negotiating tactic, they could apply some economic pressure on China. Strengthening the United States' negotiating leverage is the most compelling argument for tariffs. The 2018-19 tariffs led to the "phase one" agreement, a planned de-escalation in exchange for Chinese commitments to import more from the US and address concerns about intellectual property and technology transfers. But the 2018-19 tariffs were far from cost-free. They poisoned US-China relations, escalated tensions, pushed China into an alliance with Russia and Iran, and fueled anti-Asian sentiment domestically. They eroded America's relationships with allies who were not consulted and who found themselves also targeted by specific tariffs. And when all was said and done, the phase one deal's full impact was never realised. The disruption to trade from the pandemic meant that China fell far short of its commitments to purchase goods from the US. Today's tariff proposals risk repeating history, only on a grander scale. The incoming administration will face a wary, inflation-sensitive public and a Chinese regime that is well prepared to pursue large-scale retaliation. Whether tariffs become a negotiating tool or a source of greater economic disruption depends on how the administration balances competing objectives. Reason and strategic foresight will be crucial. ©2024 Project Syndicate Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the American Economic Review, is Professor of Economics at Yale University.The Kansas City Chiefs picked up a road victory — but in true 2024 form, they didn’t make it easy on themselves. Quarterback Patrick Mahomes led a game-winning drive inside the last two minutes, lifting the Chiefs to a 30-27 win over the Carolina Panthers on Sunday afternoon at Bank of America Stadium in Charlotte, N.C. The Panthers, entering the game at 3-7, tied it at 27 with a touchdown and two-point conversion with 1:46 remaining. But that was too much time for Mahomes. His biggest moment was a scramble, as he sprinted 33 yards down the sideline to the Panthers 22 with 39 seconds left to put the Chiefs into field-goal range. Recently signed kicker Spencer Shrader put through the 31-yard field goal as time expired. This one was close because of KC’s inability to stop a before-the-game struggling Carolina pass offense. The Panthers, behind previously benched QB Bryce Young, dissected the Chiefs secondary. Young completed 21 of 35 passes for 262 yards, while Carolina averaged a healthy 5.8 yards per play. KC also got almost no pass rush for a second straight week — a reason for concern as the team prepares for the season’s most important games ahead. Mahomes, meanwhile, played one of his best games of the season, completing 27 of 37 passes for 269 yards with the three scores. The Chiefs led 20-9 at halftime thanks to their efficient offense. Mahomes took advantage of his few possessions then, completing 19 of 24 passes for 207 yards before the break with a pair of touchdown passes to tight end Noah Gray. KC scored on all four drives, including a 14-play, 92-yard march late in the second quarter. Young went 10 for 18 for 177 yards before the break, as Carolina averaged 8.6 yards per pass and 7.5 yards per play. The Chiefs (10-1) will play at home against the Las Vegas Raiders at 3 p.m. ET on Friday, Nov. 29. ©2024 The Kansas City Star. Visit kansascity.com . Distributed by Tribune Content Agency, LLC.
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