There’s growing signs that the Biden administration plans to ease tariffs on imports from China. Not great!
Over the past week, there has been growing speculation that the Biden administration is considering lowering tariffs on Chinese imports. This is a bad idea, as I will explain in a bit.
First, a quick bit of background. Former President Donald Trump placed tariffs on Chinese imports as part of his plan to combat the unfair trade practices of China’s government, which include everything from intellectual property theft to state-sponsored enterprises to currency manipulation and massive subsidies. Whether you loved Trump or hated him, he did identify a real issue: Lopsided trade with China cost the United States at least 3.7 million jobs between 2001 and 2018.
All of those tariffs managed to bring China’s government to the table, and the U.S. and China signed a “Phase 1” trade deal in 2020 in an attempt to begin to address trade tensions between the two nations. Unfortunately, Trump’s agreement with China turned out to be a failure — something we predicted from the start — and much of the problems remain.
When President Biden took office in January 2021, many trade observers predicted that he’d remove the tariffs, as the new commander-in-chief spent his first few weeks reversing many of Trump’s policies. But, that didn’t happen; Biden kept the tariffs in place, with administration officials pointing out that China hadn’t done anything to warrant removing them. In fact, the Biden administration pledged to put a “worker-centered trade policy” in place, and that included “using all available tools” to address “China’s Coercive and Unfair Economic Trade Practices.”
But now there’s signals that a shift may be happening — and this would be a huge mistake.
Treasury Secretary Janet Yellen said last week that it’s “worth considering” looking at tariff cuts as part of the “trade strategy with respect to China,” and a White House adviser echoed those remarks. Meanwhile, Politico reported that congressional Republicans are “trying to unwind some of the last administration’s most protectionist trade policies.”
Now, there’s always been an effort in to weaken or eliminate these tariffs, mostly driven by the lobbying power of import-loving corporations. But there’s a new (and very flawed) argument going around that easing the tariffs will also solve the problem of rising inflation.
There’s some disagreement about what’s driving inflation, but it’s a litany of factors, including Russia’s invasion of Ukraine, corporate consolidation, COVID-19 shutdowns in China, the global supply chain crisis, and even decaying infrastructure.
You know what isn’t driving inflation? Tariffs placed on imports from China back in 2018 and 2019.
You know what’s not going to solve inflation? Removing those tariffs.
In fact, removing tariffs now will likely doom us to repeat the mistakes that caused all of these problems in the first place.
Let’s go back to some of the things actually contributing to rising inflation: The supply chain crisis and COVID-19 shutdowns in China. There’s widespread consensus that the United States needs to strengthen and grow its domestic supply chain; we simply cannot be dependent on imports, especially from a single adversarial nation, for the things we need. Not being able to get the things we need, and in a timely matter, is contributing to costs going up.
Reducing inflation won’t happen overnight, but strengthening our domestic supply chain and making more of the things we need will very much help in the long-term. Plus, making more here will create good jobs and strengthen our national and economic security. If there’s any lesson we should take from the COVID-19 pandemic, it’s that we cannot ever be in a position where we are unable to make the things we need ever again.
The United States must do everything possible to boost our domestic production capabilities. And the Biden administration has made progress in this area, including by finally getting infrastructure investment done. That’s a very big deal! But by removing the tariffs, the Biden administration would undermine its own hard work.
For one, doing so would reduce leverage with China, which has done nothing to earn such a reward. China has not met its commitments in the Phase 1 trade agreement, let alone dealt with any of the more serious issues that went unaddressed in that deal. Plus, there are a whole host of new issues with China’s government, including its support of Russia’s invasion, worries about its aggression toward Taiwan, and the genocide of the Uyghurs and other minority groups in Xinjiang.
Second, it also would remove incentives for corporations to exit China and diversify production, including bringing at least some of it home to the United States. All many of these corporations want is a return to the status quo, which was great for Wall Street but terrible for workers and our national security. As I wrote a few weeks back:
American corporations, multinational companies, retailers and others who have relied on China for artificially cheap imports want to go back to how the world once was, when China served as the world’s sweatshop. But the world is different.
China is a strategic economic competitor and already is ahead of the United States when it comes to sectors like clean energy and electric vehicles. We need to invest in our own industries while also enforcing our trade laws and standing up for our own workers and manufacturers, and we need to do it right now. If we don’t do this we’ll only become more reliant on China, and China wins the 21st century. Full stop.
Tariffs alone aren’t going to solve the trade problems between the U.S. and China. But what they are is a trade tool to help U.S. workers and manufacturers compete against a government that doesn’t play by the rules — and a tool to help U.S. officials as they work to level the playing field permanently.
It’s worth pointing out that one prominent person in the administration who has defended the tariffs is U.S. Trade Representative Katherine Tai. As Politico notes, Tai told the House Ways and Means Committee that “lifting tariffs now would cost the U.S. leverage at the negotiating table with the Chinese and would not do much to combat inflation.”
In that same testimony, Tai called for the United States to “turn the page on the old playbook,” including by “developing new domestic tools and making strategic investments to maintain our global competitive edge.”
The tariffs alone didn’t cause China to change, Tai said. They aren’t likely to do so on their own. But that doesn’t mean we should go back to the way things were before, either — and we certainly shouldn’t give China a reward for its continued bad behavior.
“What we need to do is continuing our efforts to create pressure for China to change,” Tai said.
“We need to start to change things on our side, and that’s the development of tools; that’s the investments; that’s the reshoring and the rebuilding of our manufacturing base. That is the plan that we need to pursue going forward.”