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Unintended Consequences in Trade Disputes

02/25/2019

Two Chinese companies, in all probability with extensive government investment, have committed to erecting chemical plants in Louisiana with a capital value of $3.1 billion. Due to the imposition of tariffs by both the U.S. and China, the companies concerned will have to pay tariffs on imported steel to erect their plants and will face tariffs on export of chemicals from the U.S. to China.

If the Administration places higher tariffs on automobiles from the E.U., both Daimler-Benz and BMW will be adversely affected. Both companies operate manufacturing and assembly plants in the U.S. exporting vehicles, especially SUVs, to many countries including China where they will be subject to tax. By the same token, steel and aluminum used in manufacture has escalated in price again placing these companies at a disadvantage.

Tariffs are an indirect tax on consumers and their use in trade negotiations only results in mutually destructive retaliation with adverse effects on agriculture and industry.