Yesterday, to help businesses stay afloat and keep workers on payrolls, President Trump authorized the deferral of tariff payments on imports of certain products by certain companies for a certain amount of time. Before you smile broadly and, perhaps, engage in a few moments of gloating over the fact that, in this gesture, the president has finally conceded that U.S. importers pay the tariffs, first be reminded that Trump sees no cost too big for others to bear and no collateral damage too catastrophic for the economy to endure to ensure he doesn’t have to admit to a mistake.
Trump’s action will provide a little breathing room for some businesses, but many, many more will asphyxiate at the altar of “China Pays the Tariffs.” Here’s what happened.
The United States, like nearly every other country, imposes MFN (most-favored nation) tariffs on imported goods. The U.S. MFN tariff rate for a particular product is the same, regardless of which WTO-member country the product comes from. For example, the duty applied to imported automobiles is 2.5 percent ad valorem. China, the European Union, South Korea, and every other WTO member have their own MFN tariff rate for imported automobiles. The rates charged by each country may differ from each other’s (and they do), but the MFN rate each applies to every other country is the same.
Now, to add a layer of complexity, the duty rates applied to imports from countries with which the United States has a separate free trade agreement can be—and typically are—lower. For example, under NAFTA, auto imports come in duty-free (provided the auto meets the necessary rules of origin—that it qualifies as originating in North America). So, there are MFN rates and preferential rates of duty. (There is also something called “Column 2” rates, which are the duties that apply to imports from countries that do not enjoy “normal trade relations” status with the United States. That list, today, includes only North Korea and Cuba.)
Finally, sometimes imports from particular countries are subject to additional and conditional tariff rates because those imports have been found to be dumped (under the Antidumping Law), subsidized (under the Countervailing Duty Law), otherwise “unfair” (under Section 301 of the Trade Act of 1974), not necessarily “unfair,” but “injurious” (under Section 201 of the Trade Act of 1974) or a threat to national security (under Section 232 of the Trade Expansion Act of 1962).
In the years preceding Trump up through 2017, duties collected were in the neighborhood of $30–36 billion per year (~1.4% of import value). Those were all MFN and preferential FTA duties, as well as about $1–2 billion of duties collected on imports subject to antidumping and countervailing duty orders.
Then, in early 2018, Trump imposed safeguard tariffs (Section 201) on solar panel components and large washing machines from most countries. Later that year, the president imposed “national security” tariffs (under Section 232) on steel and aluminum from most countries. Then, in the summer of 2018, he began imposing (in phases) tariffs on imports from China under Section 301.
The duties collected by Customs and Border Protection doubled from $36 billion in 2017 to $72 billion in 2019. So, about half of that $72 billion are tariffs collected from Trump’s noted protectionist measures, as well as antidumping and countervailing duty orders imposed during and before Trump’s presidency.
That brings us to yesterday’s executive order. Trump’s decision to grant a 3‑month reprieve on tariff collections extends only to the MFN and preferential FTA duties in effect before Trump came into office. The duties from his protectionist actions (solar components, large residential washers, steel, aluminum, China, and the numerous AD/CVD orders) do not qualify for the deferral. Why? This is presumably to inoculate Trump from having to concede that his duties on China (and the other duties that he so wisely and strategically deployed) are actually paid by U.S. importers. The burden on importers, according to this Trump contortion (if logic’s not your strong suit or you’re just willfully ignorant) is caused by the MFN and FTA tariffs, and not by the tariffs associated with Trump’s protectionist actions.
To qualify for the 90-day tariff deferral, which applies only to imports made in March and April, companies must demonstrate that they’ve suffered financial hardship and meet other opaque requirements. My back of the envelope estimate is that this action would put up to $6 billion back into the cash flow of businesses for 90 days, giving them some room to continue operating and keeping workers on payroll. But this is no more than a cosmetic, political gesture being taken when doing something more meaningful—such as deferring payment of all tariffs for one year and scrapping the corrupting conditions—would be possible, but for Trump’s obsession about winning the argument about who pays the tariffs.
