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With the stroke of the White House pen, President Biden can reduce the cost of thousands of consumer and industrial products and strike a blow in the fight against inflation, which he calls “top domestic priority.”
All he has to do is raise tariffs on Chinese imported products that President Donald Trump has imposed since 2018.
But because his advisers are divided, potential economic gains are limited, and the danger of Republican attacks being “soft on China” appears to be unconvinced.
The imperative to do something against inflation is clear. Consumer prices in April were 8.3% higher than a year ago, close to a 40-year high, and voters routinely cited rising prices as one of their biggest irritations during the election year.
With inflation threatening Democrats’ prospects in the November congressional election, Biden said this month he expects changes in the 25 percent tariffs that apply to about two-thirds of U.S. imports from China, or about $ 335 billion a year.
While Trump’s first Chinese tariffs minimized the impact on consumers by targeting industrial products, levies eventually extended to household items, including AirPods, refrigerators, televisions, clothing and toys. Now American corporations, which have opposed tariffs from the beginning, are hoping to take advantage of fears of inflation to win their abolition.
“It is not pointless to reduce the tariff burden on Americans in times of high inflation,” said Myron Brilliant, executive vice president of the US Chamber of Commerce. “I hope they do something, but will they get far enough?” It’s a billion-dollar issue. “
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But even the abolition of all tariffs on Chinese goods – which no one expects – would have only a modest impact on prices before the by-elections. A study by economists Gary Hofbauer, Megan Hogan and Yilin Wang of the Peterson Institute for International Economics concluded that lower import prices as a result of the end of tariffs will reduce the measure of consumer price index (CPI) inflation by 0.3 percent point.
If such tariff cuts were in place in April, inflation of 8.3 percent would have been 8 percent instead.
A separate study by Peterson from economist Caddy Russ of the University of California, Davis, who serves in the Obama White House, found a similar effect, which she described as “a small, short-lived dent in headline inflation.”
Huffbauer said there would be additional benefits as domestic commodity prices, which compete with Chinese imports, also fell, leading to an overall reduction in inflation of about 1 percentage point. But he said it could take nine to 15 months to materialize.
“In other words, the full benefits will not be felt before the November elections,” Hoofbauer wrote in an email.
Even these estimates are optimistic because they suggest eliminating all tariffs on more than 10,000 Chinese goods, and Biden is likely to keep most of the existing trade taxes in place.
At least two options are being considered, according to businessmen who spoke on condition of anonymity to discuss confidential discussions. The President can make it easier for importers to earn an exemption from import duties. Or some tariffs on some Chinese products may be dropped while a new investigation into Chinese trade practices is launched, which could lead to new tariffs on high-tech products or those wrongfully subsidized by Beijing.
For Biden, there are some easy solutions to inflation. Many economists say his response to the free spending of the 2021 pandemic is partly to blame for today’s rising prices. But it is too late to do anything about it. Chronic supply chain problems and product shortages are a major driver of inflation, which has contradicted the Federal Reserve’s projections for impending improvement over the past year.
Thus, the debate in the administration has turned to tariff reductions, which many economists generally support, even if its immediate benefits are likely to disappoint.
Chinese products, on the one hand, are not among the main contributors to inflation.
Gasoline prices have risen 44 percent since last year, according to the Bureau of Labor Statistics. Used cars cost almost 23 percent more. And home-cooked food is up nearly 11 percent.
However, the price of Chinese imports has risen by 4.6% in the last 12 months, well below the overall jump in the cost of living.
This does not mean that it will be easy to get rid of tariffs that are maintained by unions and some local producers.
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“Tariffs are sticky,” said Craig Allen, president of the US-China Business Council. “They’re easy to put on and really hard to take off.”
Whatever the benefits of inflation that the president realizes by cutting tariffs, it will not be invaluable. Before he can act, Biden must judge the division between his advisers, which is related to broader issues regarding the administration’s strategy to deal with China’s competitive threat.
At a meeting of the Group of Seven’s finance ministers on Wednesday, Finance Minister Janet L. Yellen approved a change in Chinese tariffs.
“They seem to be doing more harm to consumers and businesses and are not very strategic in terms of tackling the real problems we have with China, whether it’s supply chain vulnerabilities, national security issues or other unfair trade practices. “, she said. reporters in Bonn, Germany. “… Some relief may come from cutting out some of them.”
In fact, U.S. importers pay approximately $ 142 million a day in Chinese tariffs, according to Steve Lamar, president of the American Clothing and Footwear Association.
Yellen acknowledged “different views” in the administration on tariffs and suggested that a decision was not inevitable.
Catherine Ty, the president’s sales representative, is less in love with potential tariff cuts. During a recent appearance at the Milken Institute, she scoffed at Huffbauer’s research as “something between fiction and an interesting academic exercise.”
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Like any negotiator, Ty does not want to hand over a coin without receiving anything in return. But it also does not want to abandon tariffs to tackle the immediate problem of inflation at the expense of the country’s long-term economic climate. Thai sees tariffs as encouraging investment in US industries that would be less attractive if they were not protected against unfair Chinese competition.
“We need to make sure that whatever we do right now is not undermining the medium-term design and strategy that we know we need to follow,” she told Milken’s audience.
The debate over whether to keep tariffs is coming, as most analysts describe them as unsuccessful. Trump imposed trade tariffs in 2018 to reduce the huge US trade deficit with China and force the Chinese to abandon several unfair trade practices, including forcing American companies to share their technology secrets.
Instead, the deficit with China is about to set a record. In the first quarter, imports of Chinese goods from the United States exceeded US exports to China by $ 101 billion, compared to $ 79 billion in the same period in 2017 before the introduction of tariffs.
“They did not achieve their goals,” said William Reinsch, a sales specialist at the Center for Strategic and International Studies. “China’s behavior is no different from what it was then, and they have caused a lot of side damage.
But the political cost of reducing tariffs can be enormous. The AFL-CIO and other Biden-backed unions want them to continue. And Republicans would certainly focus on cutting tariffs as a sign of the Democrats’ weakness toward Beijing.
Republican hostility to China is evident in the wake of the campaign in states such as Missouri, Pennsylvania and Ohio. In a Gallup poll in March, 49 percent of Americans described China as “the country’s biggest enemy,” compared to 45 percent last year.
“Republicans would defeat President Biden if he significantly reduced tariffs,” said Derek Sisors, a China expert at the American Institute of Entrepreneurship. “The US trade deficit with China has set a record for the first quarter, despite tariffs, and could set a record for the year. If President Biden cuts tariffs and we do see a record deficit, it gives Republicans a chance to kidnap union voters.
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