Biden Officials Divided Over Easing China Tariffs to Slow Inflation

Date: Friday, May 6, 2022
Source: The Wall Street Journal

WASHINGTON—The Biden administration is split on whether to pare back tariffs on imports from China in an effort to cut consumer costs and reduce inflation, as the White House gives renewed consideration to a step that has divided officials.

On one side of the debate within the administration are Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo, who favor easing the tariffs on some of the roughly $360 billion annually of Chinese imports put in place under the Trump administration, according to people familiar with the matter.

On the other are Trade Representative Katherine Tai and others who are reluctant to relinquish U.S. leverage over China in a continuing effort to reshape Chinese economic behavior, according to the people.

President Biden has been undecided on the question but has recently revisited the issue as the White House looks to reduce the highest inflation in four decades, according to one of the people. The discussions come as the administration on Tuesday started a legally required review of the Trump-era duties. The U.S. Trade Representative is required to study the impact on tariffs first imposed in 2018 on the economy after four years.

The deliberations raise complicated policy and political questions. Inflation has become a political albatross for the Biden administration and Democrats, and the White House has broad authority to control trade policy without needing a closely divided Congress to act. At the same time, many lawmakers on Capitol Hill have become increasingly hawkish toward China, while labor unions and some of their progressive Democratic allies are skeptical of steps that would make Chinese imports cheaper.

White House press secretary Jen Psaki said last week that the administration’s review on tariffs with Chinese imports would consider both their impact on inflation and the broader U.S. approach toward China. The Biden administration intends to maintain elements of the tariffs that it concludes are helpful to American workers, consumers and industry and alter what it finds to be harmful, according to administration officials.

“We’re certainly looking at where we see costs being raised at a time where we’re seeing heightened inflation; certainly, that’s on our minds,” Ms. Psaki said. “It’s also about addressing the core issues we have with how China has approached, you know, their engagement around economic issues as well.”

The Treasury and Commerce Departments declined to comment.

Russia’s war against Ukraine has put fresh pressure on U.S.-China relations, as Ms. Yellen and other U.S. officials have warned China against aiding Russia in its war. Chinese officials have criticized Trump-era tariffs and called for their removal without offering benefits for the U.S. in return.

“During the past few years, the facts have proved that a tariff war cannot solve the U.S. trade issues,” Lyu Jiang, minister counselor of the Economic and Commercial Office of the Chinese Embassy, said in a briefing last week. “It would only drive up inflation and increase the cost of living for ordinary American consumers and families. So an early termination of these sanctions, the tariffs, will help stop the loss of the China-U.S. relations.”

One key point of debate is the extent to which lifting the tariffs would ease inflation. Ms. Yellen said in an interview with Bloomberg TV last month that doing so could help reduce prices.

“We’re re-examining carefully our trade strategy with respect to China, and I think it’s worth considering. We certainly want to do what we can to address inflation, and there would be some desirable effects,” she said. “It’s something we’re looking at.”

Speaking at a Milken Institute Global Conference on Monday, Ms. Tai appeared to disagree. She said that U.S. efforts to reduce inflation in the short term shouldn’t sacrifice longer-term policy goals, such as addressing China’s trade practices and enhancing supply-chain resilience.

“Whatever sets of tools we deploy to address the challenge we have right now, we have to deploy with a view to the medium term,” she said. “We need to make sure that whatever we do right now, first of all, is effective and, second of all, doesn’t undermine the medium-term design and strategy that we know we need to pursue.”

Outside economic estimates have varied on the inflationary impact of easing tariffs.

A March study by Gary Clyde Hufbauer and others at Peterson Institute for International Economics found that eliminating tariffs and their cascading effects on the U.S. economy could reduce annual inflation, as measured by the consumer-price index, by 1.3 percentage points. A separate Peterson study by Katheryn Kadee Russ, found the tariffs on Chinese imports added 0.26 point to annual inflation. In a 2019 study, Federal Reserve economists said 25% tariffs on all Chinese imports would increase the change in CPI by 0.4 point.

Consumer prices rose 8.5% in March from a year earlier.

The USTR on Tuesday said it would begin the process of notifying industries that benefit from the earlier Trump-era tariffs that they may end. If any of those industries request a continuation of the tariffs, the agency will formally start a review process after July 6. Groups representing industries such as steel and textiles have said they want the tariffs kept in place.

“People are concerned about the rising food costs and rising energy costs. No one is complaining about the cost of their underwear or T-shirts,” said Kim Glas, president and chief executive of the National Council of Textile Organizations, a group representing the U.S. textile industry that plans to request the tariffs be maintained.

The pace of the USTR’s deliberations over the Trump-era tariffs has frustrated other businesses.

“We are facing inflation, a stalling economy and continued supply-chain problems. Tariff relief is one of the few things that could help, that is in the administration’s control,” said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce.

The review, trade experts say, will give the administration an opportunity to shuffle the composition of tariffs. Duties might be increased on technology products of strategic importance, while those on consumer goods could be reduced.

Easing the tariffs could take the form of expanding the list of items excluded from the duties. The Biden administration in March renewed tariff waivers for 352 categories of goods from China after the previously granted exemptions expired. Republican lawmakers and business lobbies have been pushing for expanding the list significantly.

[Read from the original source.]