Brad Setser

Tariffs globally in both sectors are zero. There are no meaningful differences in tariff rates. And not many non-tariff barriers (FDA approval is needed for the sale of a drug in the US, and many countries piggy back off that ... but no one would say this is unnecessary) 2/

The US of course now runs a massive (0.5 pp of GDP) trade deficit in pharmaceuticals. But that is because US firms can avoid paying the headline US tax rate on their most profitable drugs by moving the IP and production abroad 4/

And US drug companies typically also make their patent protected drugs for the global market abroad -- so the standard US trade negotiating demand (longer periods of patent protection and the like) would have no impact on goods exports/ the bilateral goods balance 5/

Chips (semiconductors) have some similarities -- though the current global pattern of production is more tied to past industrial policies (and TSMC's successful model of being an independent cutting edge fab) than to tax avoidance 6/

There are of course tax advantages to exporting chip designs (NVDIA, Qualcomm, Apple, others) rather than actual chips (Intel) but they aren't huge ... But there aren't major tariffs or non -tariff barriers (outside of China, which isn't keen on paying for legacy chip IP) 7/

However tariff free trade can still be distorted (or shaped) by government policies -- Chris Miller's Chip Ways documents how Singapore pulled in foreign chip manufactures with tax advances, and how Taiwan and Korea subsidized their own national champions 8/

And the scale of China's current chip subsidies is really mind blowing, as it (for understandable reasons) a national priority and Xi isn't afraid of writing big checks for technological catch up 9/

Point being that bringing tariffs down to zero won't change the global game in either pharma or chips. Tariffs are already zero. Changing the pattern of trade requires thinking more broadly ... 10/

For pharma, I obviously think the right approach is to get rid of the pro offshoring provisions of the Tax Cuts and Jobs Act (George Callas has some interesting ideas that might be palatable to Republicans) 11/

And for chips, the US really did need an industrial policy of its own if it wanted to stay at the technological cutting edge (hence the bipartisan CHIPS act). A stronger taiwan dollar wouldn't hurt either; it would make TSMC more keen to invest abroad 12/

But the narrative that every trade problem (including for that matter limited US auto exports) can be traced to differentials in tariffs that panelize the US isn't really true. /end