Date: Thursday, July 7, 2022
A move by President Joe Biden to remove tariffs on Chinese consumer goods will do little to dent inflation, economists say, and risks further hamstringing Democratic candidates in political battlegrounds.
Biden is weighing a decision to remove some of the tariffs on more than $300 billion in Chinese imports imposed by his predecessor, Donald Trump, according to people familiar with the deliberations, as his administration desperately tries to curb fast-rising US prices.
When is this happening?
As soon as this week, according to people familiar with the deliberations, who asked not to be identified without permission to discuss private conversations. As of Tuesday, Biden hadn’t yet made a final decision on what to do with the duties, and the timing could slip, they said.
The timing is significant because Wednesday marks the four-year anniversary of the first wave of Trump-era tariffs, and the administration’s review is required to keep them from starting to automatically expire.
Trump used section 301 of the Trade Act of 1974 to hit China with the duties starting in July 2018 after an investigation concluded China stole intellectual property from American companies and forced them to transfer technology.
Biden in recent weeks has held a number of meetings with senior economic advisers where options for a decision on the tariffs were discussed, according to the people.
What products will be affected?
The tariffs hit goods including industrial inputs such as microchips and chemicals, and consumer merchandise such as apparel and furniture. While there’s been no direct indication of which duties may be removed, senior administration officials have said reducing them on household items could help ease consumer inflation, which accelerated at the fastest pace since 1981 in May from a year earlier.
Last month, US Treasury Secretary Janet Yellen said reductions “could help to bring down the prices of things that people buy that are burdensome.”
That’s similar to the view held by Commerce Secretary Gina Raimondo, who in June said removing duties on household goods “may make sense,” but favored keeping tariffs on steel and aluminum products from China as a way to protect American workers and national security.
Still, ending tariffs on merchandise like bicycles and clothing won’t help Americans where inflation hurts most -- food, fuel and housing.
The White House has asked retail companies for a commitment to lower prices following any duty reductions but executives rebuffed that request and told US officials it was an unrealistic expectation, the people said.
Will it give Americans relief from sky-high inflation?
Some -- but not much -- is the consensus view.
Barclays Plc said any rollback of tariffs on Chinese goods would be “a drop in the bucket” for lowering the US inflation rate, which climbed an annual 8.6% in May.
The bank estimated the maximum direct effect of a complete end to the duties is a one-time reduction of 0.3 percentage point, given the relatively small share of Chinese imports in the US consumption basket.
Supply constraints, exacerbated by Russia’s war in Ukraine this year, account for about half of the surge in US inflation, with demand currently making up a third of the increase, according to research from the Federal Reserve Bank of San Francisco. Lockdowns in China have also worsened pandemic-era supply-chain disruptions that raised prices.
As Yellen noted in June: “I honestly don’t think tariff policy is a panacea with respect to inflation.”
US Trade Representative Katherine Tai, who last month called the tariffs “a significant piece of leverage,” told senators there’s “a limit to what we can do” to ease inflation through tariff changes.
March research from the Peterson Institute for International Economics estimated that eliminating a wide array of tariffs, including those on Chinese goods, could reduce the inflation rate by 1.3 percentage points. However, such broad tariff elimination has never been on the table for the Biden team, people familiar with the discussions said.
What Bloomberg Economics Says...
“The impact of removing tariffs on inflation would be limited because imports from China affected by the trade-war duties comprise only a fraction of the US consumer basket. Inflation in food, energy and shelter costs -- items for which these tariff discussions have limited relevance -- matter a lot more than electronics, textiles, toys, furniture, floor coverings and bedding products. Tariffs weren’t really a game changer for US inflation when they went on, and likely won’t be if they come off either.”
-- Andrew Husby and Yelena Shulyateva, economists
Tariff relief will bring down consumer costs, but the timing and extent is difficult to forecast, said David French, senior vice president of government relations at the National Retail Federation.
“Billions of dollars in tariffs have already been paid on a large number of items that are currently working their way through retail supply chains,” French said. “Retroactive tariff relief may have more of an immediate impact on costs for items that have already arrived in the US.”
Excluding some goods from tariffs has to date only provided a limited amount of relief and takes weeks to months to administer, he said.
How will the issue play in the US midterm elections?
Biden has struggled to contain the economic and political fallout from rising prices for gasoline, food and other products, endangering Democrats’ chances of holding onto their congressional majorities in the November midterm elections.
While removing tariffs on Chinese goods could help the president demonstrate he’s taking every possible step to try to lower prices, it could open a rift with Democrats running in Rust Belt states that have seen manufacturing jobs vanish over the last several decades.
Tim Ryan, the Democratic nominee for Ohio’s pivotal open Senate seat, won’t join Biden in Cleveland Wednesday, communications director Caty Payette said, citing previously scheduled campaign stops in southern Ohio. The congressman said it would be a “major mistake” to lift tariffs on certain Chinese goods.
The move would be doing “nothing to ease inflationary pressures on American consumers and rewarding a human-rights abusing, communist government for years of cheating American workers and stealing jobs,” Ryan said in a statement. “I will fight like hell against any move -- by either political party -- that incentivizes predatory trade practices that put China ahead of our workers.”
In May, Ryan skipped Biden’s visit to Cincinnati designed to promote his stalled China competition bill.
Does this mean China-US relations are thawing?
US-China ties are likely at their worst since former President Richard Nixon’s historic trip in 1972 helped re-establish diplomatic ties between Washington and Beijing, Nicholas Burns, the US ambassador, said last month.
But with Biden and Xi expected to speak by phone later this month, official interactions by senior officials are increasing. Secretary of State Antony Blinken is due to meet Foreign Minister Wang Yi on the margins of a Group of 20 meeting in Bali, Indonesia. And this week, Yellen discussed economic matters with Chinese Vice Premier Liu He.
Will the US and China economies decouple?
The tariffs haven’t achieved the intended goal of slowing down imports from China and rebalancing the trade relationship with the US. While China’s economy has been undermined by Covid-related shutdowns this year, exports to the US in the first five months of 2022 still grew 15.1% from a year earlier, after jumping almost 28% in 2021 and 8% in 2020.
But American company executives have been highlighting plans to relocate production -- using buzzwords like “onshoring,” “reshoring” or “nearshoring” -- at a greater clip this year than they even did in the first six months of the pandemic, according to a review of earnings calls and conference presentations transcribed by Bloomberg.
There are concrete signs that many of them are acting on these plans: The construction of new manufacturing facilities in the US has more than doubled over the past year, dwarfing the 10% gain on all building projects combined, according to Dodge Construction Network.