Tactical Tariffs: China’s Politically Targeted Trade Policy

Abstract

The emergence of China as an economic competitor and as a strategic rival poses a unique challenge to the United States and other Western countries. Increasingly, China’s national and international agenda on issues ranging from human rights to climate change seem to threaten the strategic interests and values of Western countries. However, these countries’ simultaneous reliance on China as a major trade and investment partner inherently complicates any efforts to properly counter China on the world stage. Moreover, China’s retaliatory tariffs against the U.S. in 2018-2019 and trade restrictions against Australia in 2020 seemingly demonstrated a newfound willingness on China’s part to leverage its economic power in order to achieve its geopolitical goals. This thesis investigates how exactly China designed its tariff policies against the U.S. and Australia. The paper draws on smart sanction theory to propose an original theoretical model that hypothesizes that China’s tariffs targeted “swing” states in the U.S. The thesis retests this hypothesis in the context of Australia, providing the first ever analysis of political targeting in China’s tariff and trade restrictions against Australia. The paper finds that while Chinese tariffs did disproportionately affect areas that support the party of the incumbent leader in both countries, China did not seem to incorporate the outsized political importance of certain “swing” geographies in its tariff schedule for both countries.