Tariffs on China Unlikely to Impact Cheap Imports

Americans used to buying $4.99 shirts for kids, cut-rate toys or bargain-basement furniture at the local Target or Wal-Mart need not panic — economic forecasters who spoke with FOXNews.com say any move to force China to stop using unfair trade practices to dump cheap wares on the United States may have little effect on prices.

But if the United States follows lawmakers' proposals and imposes new tariffs on Chinese imports as a penalty for artificially pegging their currency to the low dollar, Americans may see a dramatic change in the products offered to them, said Myron Brilliant (search), vice president for Asia at the U.S. Chamber of Commerce.

"Tariffs being imposed on foreign goods does negatively impact consumers; it limits their choices and raises their prices," Brilliant said. "[Consumers] benefit from having fair competition in the marketplace."

Several lawmakers in the House and Senate say that threatening tariffs is the only way to send a message to the Chinese government that it hasn't been a fair player in the marketplace — whether it be through undervaluing its currency, the yuan, subsidizing its private companies or flouting intellectual property rights in order to give their goods a disproportionate advantage.

"Ultimately we need to encourage China to start playing by the rules and to drop their mercantilist policies," said Rep. Phil English (search), R-Pa., a main sponsor of the China Act (search), which would impose as much as 27 percent in tariffs, or duty taxes, on Chinese imports if they did not agree to revaluate the yuan.

"It puts pressure on them to move and it comes at a time where they seem to be digging in their heels," English told FOXNews.com.

The House and Senate have been buzzing with concern over the U.S. trade deficit with China, which hit a record $162 billion in 2004. Lawmakers say unfair trading practices, which violate World Trade Organization rules, are responsible, and China is continuing to put U.S. workers out of jobs because domestic businesses can't compete.

"When we're losing jobs because of unfair rules, then I think it's time to take action," said Rep. Mark Green, D-Wis., a co-sponsor of the China Act, who like English hails from a heavy manufacturing district.

Kenneth Rogoff, professor of economics at Harvard University, said trade with China has been great for America, even if some jobs have been lost in the process.

"We're buying things at a small fraction of the cost we used to. It has driven our productivity. It's driven our income growth. It has been at the core of why we have prospered so much the last 20 years. But the problem is, it's happening so fast that factories are closing, it dislocates people, and it's not easy to adjust. And that's really where the pressure comes from," he said.

Rogoff said that imposing tariffs would have a negative impact that extends beyond trade.

"I think that's really going nuclear, so to speak, here. And that would be really unfortunate to get in a trade war. We have a hugely beneficial relationship. We like shopping at Wal-Mart, Home Depot, Best Buy, all these places that use a lot of Chinese goods. And if we get into a tariff war — it's not just tariff. But they're going to do something back to us, and it could spill over into Taiwan, North Korea. We'd like to handle this smoothly," Rogoff said.

While Brilliant said some increase in pricing may occur after a future China revaluation of its currency, the increases would be incremental, depending on how it's done, and cheap goods would flow from other international competitors waiting to fill the gap.

Green said he did not think American consumers would ultimately be adversely affected. "I believe, that if this bill becomes law" or if the Chinese voluntarily change their policy, "consumers will ultimately benefit."

Administration officials last week tried to put a damper on the drumbeat to force China's hand, by playing down the idea that a marked increase in China's currency would ultimately have an impact on creating jobs and manufacturing activity in the United States.

"I have no credible evidence that supports such a conclusion," Federal Reserve Chairman Alan Greenspan said a week ago before the Senate Finance Committee. "The broad tariff on Chinese goods that has recently been proposed, should it be implemented, would significantly lower U.S. imports from China but would comparably raise U.S. imports from other low-cost sources of supply.

"At only slightly higher prices that prevail at present," products that are now shipped through China as the final assembler will likely move directly from other economies in Asia and Latin America, Greenspan said. "Few, if any, American jobs would be protected."

That is not to say that the administration wants to see the yuan continue to be undervalued at U.S. expense. Greenspan and Treasury Secretary John Snow, who also testified before the committee, said the Chinese, through open talks, were showing signs of voluntarily ending their currency practices.

"After two years of intense engagement, it is clear that China today is prepared to introduce greater currency flexibility," said Snow, who added that "resorting to isolationist trade policies would be ineffective, disruptive to markets and damaging to America's special role as the world's leading advocate for open markets and fair trade."

Nonetheless, several senators spoke out against what they said was China's resistance to change, and insisted that waving a big stick was the best way to spur it themselves.

"There is something going on in this Senate that is a fundamental sea change," said Sen. Lindsey Graham, R-S.C., who with Sen. Chuck Schumer, D-N.Y., has introduced a bill similar to the China Act. The Senate leadership has agreed to give it a vote before July 27.

Sen. Evan Bayh, D-Ind., and Sen. Susan Collins, R-Maine, have introduced legislation that would allow the United States to apply duties to Chinese goods that were made in government-subsidized companies.

They say it is unfair for the administration to attack lawmakers as "protectionists."

"I don't believe that being free traders is synonymous with being suckers," Bayh said.

Bayh said he believes that allowing the trade deficit to continue to break records will have a long-term negative impact on America's economic well-being, considering that it is currently borrowing $2.1 billion a day to compensate for the $195 billion account deficit in the first quarter of this year alone.

The debate is sure to rage on, as trade analysts say they believe that Chinese economic polices are only a part of a larger problem with the U.S. economy, problems that originate at home. Furthermore, imposing penalties on China could hurt the U.S. trade reputation with other partners throughout the global economy.

Most likely, said Dan Ikenson, a trade policy analyst with the libertarian think tank Cato Institute, if the United States begins to impose tariffs and penalties on China, it would have a deliberate, negative effect on consumers here.

"It's just a rash idea that would be ruinous to our economy," he said, doubting seriously that the tariffs would ever be imposed. "It's not going to help anybody, it will hurt a lot of people though."