The Financial Times has an article discussing the proposed tax on Chinese ships that use US ports:
In 2024, about 46 per cent of US bulk fertiliser imports — 6.7mn metric tons — were carried by Chinese-built dry bulk carriers, according to Kpler data. A $1.5mn fee could increase transportation costs by $62.50 per ton, a burden that would likely be passed down to farmers, already facing high input costs. Phosphate and nitrogen fertilisers, essential for US crop production, would be hit hardest. . . .
The suggested fees are the result of a months-long investigation by US trade officials, initiated by the Biden administration, into how to counter China’s maritime dominance. The probe came in response to complaints from union leaders about Chinese industry subsidies. Japan and Korea are also major builders, with American shipmakers widely considered slow and expensive in comparison.
Why can’t US farmers simply pass on this extra cost to the foreign consumers of their exports? The problem they face is that the tax does not apply to their competitors. While the global demand for farm goods may be somewhat inelastic, the specific demand for US farm exports is far more elastic, as importing countries have many other suppliers to choose from:
Jay O’Neil, a commodities consultant, said that the proposed fees “scare the heck out of me”, adding that they amount to “encouraging crop production expansions in lands of our foreign competitors”.
READER COMMENTS
Jose Pablo
Apr 1 2025 at 8:12pm
complaints from union leaders about Chinese industry subsidies.
So, union leaders were basically complaining about Chinese taxpayers subsidizing US farmers.
Scott Sumner
Apr 2 2025 at 1:12pm
Yes, unions and farmers are usually on the opposite sides of issues.
Warren Platts
Apr 2 2025 at 1:42am
Well, cool! So consumers do not always eat the entire cost of a tariff! And the other thing is that if Foreign imposes a tariff on Home food exports, that will lower food costs for Home consumers.
Jon Murphy
Apr 2 2025 at 9:21am
Eh, it depends. Ceteris paribus, food prices could go down (although not necessarily food costs. Those could rise). It’d depend on the elasticity.
But, for the US case in particular, it’s doubtful that food prices would fall. Recall:
1) The US does a lot of intra-industry in trade. So, there will be tariffs on imported foods.
2) US farms rely heavily on imported goods like fertalizer & farm machinery parts. Again, those are facing tariffs, increasing costs.
3) US farms use a lot of immigrant labor. With the crackdown and arbitrary deportations, there will be fewer workers, increasing costs. (Even if you want to assume that, for some reason, all the immigrant labor can be replaced with machines, that will still raise costs. See #2 and the logic that, if automation was the lower-cost option, firms would already be doing it).
Items 1-3 will reduce the supply of both American and foreign producers. Falling supply leads to higher prices, all else held equal. Of course, demand could fall as well due to a potential recession from these tariffs leading to layoffs. Falling demand coupled with falling supply could reduce prices, but it’d depend on the magnitude of the shifts.
Furthermore, note that such an action would both reduce terms of trade (prices of exports down, prices of imports up, terms of trade fall, QED) and lead to a weaker labor market.
(As an aside, I don’t understand Trump’s War on Farmers. Why does he think attacking his voter base is a good idea? Or maybe he really does thing that Lower Revenue + Higher Sales = More Profit?)
Warren Platts
Apr 2 2025 at 1:16pm
Recall the bracero exclusion. There was that big NBER paper by Clemmons et al. on it. It didn’t raise wages (much), but it did prompt automation. Tons of tomatoes harvested per man hour increased by a factor of 10. Total production doubled. And no doubt jobs were created in the food manufacturing sector as a result. The world loves ketchup and salsa!
Jon Murphy
Apr 2 2025 at 1:32pm
Note I addressed that point in my comment
Warren Platts
Apr 3 2025 at 3:50am
Jon, you are exactly correct that firms would prefer to throw cheap labor at any problem than invest in new machines because human beings willing to work for less than the national minimum wage of $7.25 are cheaper than new machines.
Warren Platts
Apr 3 2025 at 3:53am
This raises an interesting question actually: Does rising labor productivity cause high wages, or is it the case that high wages cause rising labor productivity?
Jon Murphy
Apr 3 2025 at 6:26am
Both those comments, Warren, are things I expect my Econ 101 students to understand. I’m fact, I ask very similar questions on my final exams.
A good understanding of theory is vital to understanding the world. Without understanding the underlying theories, one will butcher the models and end up with conclusions that lack validity.
Jon Murphy
Apr 2 2025 at 7:20am
Good stuff. Despite its absolute size, the US really is a “small” country in many ways when it comes to trade.
Jose Pablo
Apr 2 2025 at 1:16pm
The U.S. accounts for approximately 15% of global GDP (adjusted for purchasing power parity), which raises an interesting question:
From a purely economic—not political—perspective, what is the difference between the U.S. imposing trade barriers against the rest of the world and California (which represents 14% of U.S. GDP) imposing trade barriers against the rest of the country?
Wouldn’t most, if not all, of the supposed economic benefits of the Trump administration’s trade policy also apply to California in such a scenario?
Warren Platts
Apr 2 2025 at 1:19pm
If California wants to secede from the USA, they have my blessing. I would enjoy a hard border on that place.
Jose Pablo
Apr 2 2025 at 2:08pm
That wasn’t the point, Warren. It is just easier to visualize that all this fuss about trade restrictions is just hot air if you use the California (or Texas or Florida) example.
But, from a pure economic perspective, both cases are the same.
Jon Murphy
Apr 2 2025 at 1:33pm
No difference. All these “benefits” from trade restrictions are accounting slights of hand.
Comments are closed.