Biden kept Trump's tariffs on Chinese imports. This is who pays the price
Dan Digre's family has been making loudspeakers in America for decades, growing from a small storefront in Minneapolis to a state-of-the-art factory with nearly 100 employees and customers ranging from airlines to transit to drive-thru restaurants.
But in the past few years, Digre has begun making more speakers in China – the unintended but direct result of a policy that was supposed to deter U.S. reliance on Chinese imports.
That policy was a signature move by former President Donald Trump – steep tariffs on about $370 billion of imports from China each year, thousands of items ranging from everyday things like underwear and kitchen utensils to the tiny, specialized components that American manufacturers, like Digre, need to build their products in the United States.
"Unfortunately, the tariffs have caused us to move manufacturing of some of our products over to China," Digre said. "If the tariffs went away, we would start moving a lot of that stuff back here."
Trump's tariffs were an about-face from decades of free trade policy. Economists warned that American consumers would pay the price, U.S. companies complained they would lose money to foreign competitors, and Democrats piled on Trump for a shift they criticized as haphazard.
But more than two years into his term, President Biden has kept the tariffs. They are under review, but experts say there is little political room for him to get rid of them altogether.
I feel a little bit like a pawn in this big geopolitical game. And all we want to do is build speakers.
Analysts say the tariffs have had a mixed track record. There are fewer imports from China of the items on the long tariff list, but it's not clear American manufacturers have gained all the benefits. Imports from Vietnam have more than doubled since the tariffs went into effect. And earlier this year, an independent nonpartisan agency, the U.S. International Trade Commission, released a report that found American importers, not the Chinese, have borne most of the costs.
"I feel like the tariffs put small manufacturers like us at the front line," Digre said. "We're the ones paying the tariff. We're the ones out trying to find new suppliers ... I feel a little bit like a pawn in this big geopolitical game. And all we want to do is build speakers."
Trump wanted to expose unfair Chinese trade practices
For years, American businesses had complained that China was trading unfairly – subsidizing domestic industries, disrespecting intellectual property rights, and even forcing American companies to turn over their tech secrets in exchange for the right to operate in China.
Trump wanted to use the tariffs to force China to change its ways, said Robert Lighthizer, who was the U.S. Trade Representative in the Trump administration.
"[It] was part of an overall strategy of taking on China for the first time and really ringing the alarm for the world that China is a predator," Lighthizer told NPR.
Instead of working through the World Trade Organization, Trump used U.S. domestic laws to launch an investigation and then unilaterally impose tariffs. The strategy was widely denounced.
"Everyone in town, in Washington, was against us," Lighthizer said.
Biden said it was the wrong way to go after China
At the time, Democrats condemned Trump for what they called an erratic move, and said he wasn't being strategic in picking this fight with China.
In the summer of 2020, when he was running for president, Biden also scoffed at Trump's strategy, telling NPR that "we're going after China in the wrong way."
"Manufacturing's gone into recession," he said. "Agriculture lost billions of dollars that taxpayers had to pay."
As president, Biden has put rebuilding the American manufacturing sector at the center of his economic policy, touting incentives and subsidies for infrastructure, semiconductor plants, and electric vehicles.
"Where in God's name is it written that America can't lead the world again in manufacturing?" Biden said earlier this month at a rally with union members in Philadelphia.
Biden's trade adviser has been reviewing the China tariffs
Biden hardly ever mentions the China tariffs. Yet, he has kept them.
After he took office, Biden's top trade official – U.S. Trade Representative Katherine Tai – launched a review of the Trump tariffs. That process is expected to wrap up later this year.
In an interview, Tai sought to separate the rationale for the tariffs from the manner in which they were imposed.
"[It] was done in a pretty provocative way with a lot of confrontational chest thumping, which I think drew some concerns both internationally and domestically – and I'm putting it diplomatically," Tai told NPR.
But she was less critical about Trump's diagnosis that the U.S.-China trade relationship is out of balance. China's unfair trade practices – forced technology transfers and theft of intellectual property – remain a big challenge, she said.
What has China done in these last few years that would merit our changing this tariff structure?
"We are looking at the tariffs in a very strategic way," Tai said. And while the review is still ongoing, it's clear the Biden White House views the tariffs as leverage.
"I can't tell you exactly where we're going to end up precisely because we need to have the process run its course," said Tai.
"I would say that one key question that's really important for us to consider is: what has China done in these last few years that would merit our changing this tariff structure?"
Some U.S. companies have been helped by the tariffs
Not all businesses share frustrations with the tariffs.
Greg Pray, a self-described conservative from North Carolina, said he has been pleasantly surprised by the Biden administration's commitment to Trump's tariffs – a policy he sees as a safety net. Pray is the CEO of Columbia Forest Products, a hardwood plywood and veneer manufacturer with 13 facilities across the United States and Canada.
In 2017, the Commerce Department found that China was dumping plywood into the United States at unfairly low prices. Massive duties were put on Chinese plywood.
Pray's industry cheered the Trump tariffs as a sign that the U.S. government was trying to help. "If we're going to have manufacturing in the United States and have it continue to compete, it has to be done fairly," he said. "And that's what these tariffs help us to do, is have a fair playing field."
But the tariffs aren't perfect. Pray said Chinese companies have tried to circumvent the system by moving some of their manufacturing to Vietnam and Indonesia.
There are winners and losers in this policy
In 2019, when NPR first met Digre, his company's future in America felt uncertain. He didn't know where to find some components outside of China and he was worried he'd have to move his entire factory overseas.
Some of his speakers have 14 different tiny components, many of which are imported. Digre pays the U.S. government a 25% tax on each individual part.
But when he imports a speaker fully made in China, the tariff is lower: only 7.5%.
This disparity has led to the opposite outcome from what policymakers were trying to achieve. Sometimes it makes more sense for Digre to import the entire speaker rather than assemble it here. "In many cases ... more of our product is being built in China now than before the tariffs," said Digre.
Chad Bown, a senior fellow with the Peterson Institute for International Economics, said there are probably thousands of similar cases.
"That's the sort of perverse nature of these tariffs," said Bown. "Any time you use a policy tool like tariffs and you don't apply them uniformly across all products, you, in essence, create the incentives for economic activity to shift away from the products that are being subject to the tariffs, to the things that are not being hit with the tariffs."
Digre moved into a new factory facility in 2019, just as the trade war was getting underway. He had plans to grow his business, but instead, he says he's spent about $2 million on tariffs.
"If we had that money you would see some very, very high-tech assembly lines set up here," he said, pointing to a large swath of his factory floor sitting empty.
He can pass a portion of his additional costs on to customers, but not all, he says, because he's competing against foreign companies that don't have to pay these tariffs.
So instead, the money has largely come out of MISCO's profits, which means less growth, less innovation, and no new American jobs.
Digre said he had hoped the Biden administration would bring more nuance to tariff policy.
"We shouldn't penalize a company that wants to build their product in America ... even if those low-tech component parts are made in China and brought into the United States," Digre said.
"I think one of the failings of the current administration is they haven't been willing to look at it more strategically," he said.
Digre has been forced to change his business strategy in other ways, too. He has found alternative suppliers for some of his parts in Vietnam and Indonesia, where he does not face an import tax.
"Vietnam is developing a loudspeaker industry. It's developing parts suppliers. But it's very new. Supply chains just don't move on a dime," Digre said.
Politics make it hard to get rid of the tariffs
The Biden administration sees supply chain diversification as evidence that the tariffs are working: reducing America's dependence on China, and encouraging companies to look to friendlier nations.
But the original goal was to force China to change its practices. That hasn't happened. And in the years since these tariffs were first imposed, there's been a growing chorus of Republicans and Democrats who say China's behavior has gotten worse.
"The Chinese Communist Party, particularly the President Xi Jinping, has become even more aggressive and more openly anti-American," said Lighthizer, Trump's top trade official.
And other tensions with China have changed the debate. When the tariffs were put in place, the focus was on economics and trade policy, said economist Chad Bown.
"The conversation has shifted entirely. It's not about that anymore. It's all about national security ... the heightened tensions that we're seeing over Taiwan, military engagements, balloons floating over the United States, things of that nature that we're really having to grapple with today," Bown said.
And as Biden's officials complete their review of the tariffs, there's another factor that makes it hard to have a nuanced approach to changing the policy. Biden is also in the midst of the 2024 presidential campaign, where Trump – the father of these tariffs – is the current Republican frontrunner.
That leaves Dan Digre in Minnesota rather glum about the prospects of any big change.
"I hate to say this, but it would just get portrayed as being weak on China," he said. "The whole China thing is so toxic. We can't seem to get past this whole idea of who's toughest on China."
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