The Biden administration is blaming record high inflation partly on Trump’s China tariffs
“We’re certainly looking at where we see costs being raised and, at a time where we’re seeing heightened inflation, certainly [import tariffs are] on our minds,” White House Press Secretary Jen Psaki said on Monday, noting that the Biden administration is reviewing whether to lift the Trump-era tariffs on Chinese goods.
Psaki’s comments follow similar remarks made by other Biden officials. On Thursday, Deputy National Security Advisor Daleep Singh said the U.S. might consider lowering tariffs on “non-strategic” products, during an event at the Bretton Woods Committee.
Singh noted that the administration wanted to “reframe the purpose of these tariffs so that they’re advancing real, strategic priorities of the United States.” Then, on Friday, U.S. Treasury Secretary Janet Yellen said that lowering tariffs to combat inflation was “worth considering” in an interview with Bloomberg TV.
The tariffs in question were first implemented in 2018, when the Trump administration slapped steep levies on over $200 billion worth of Chinese goods, to combat what then President Trump described as China’s “unfair practices,” such as forcing foreign companies to exchange technology for access to the Chinese market, and reportedly dumping cheap goods in the U.S.
Trump’s action kickstarted a trade war between China and the U.S. that has yet to be resolved, after both sides ratcheted up tariffs on each other’s exports.
Average tariffs on Chinese imports are now levied at 19.3%, according to the Peterson Institute of International Economics (PIIE), and cover over two-thirds of all goods the U.S. buys from the country. The total basket of tariffed goods is worth roughly $335 billion in annual trade (using 2017 numbers, before the tariffs came into effect).
After President Biden took office in January 2021, his administration largely elected to keep Trump’s tariffs in place, and in January of this year, Biden said that “we’re not there yet” when it comes to lifting the tariffs. Biden cited China’s failure to meet an import quota Beijing agreed to in 2020 as part of a “Phase 1” trade agreement to end the trade war.
Despite the tariffs making Chinese goods more expensive for American importers, China’s trade surplus with the U.S. has continued to increase, hitting $396.6 billion in 2021, up 25% from the year before.
In March, PIIE economists estimated that a trade liberalization policy equivalent to a 2-percentage-point reduction in tariffs could knock U.S. inflation down 1.3 percentage points from its current rate—which they calculate would be equal to almost $800 per U.S. household.
Former U.S. Treasury Secretary Lawrence Summers, commenting on PIIE’s research, argued those estimates were conservative, noting that reducing tariffs would increase competition among producers, leading to lower prices overall on top of the price reduction from removing tariffs. But some economists are skeptical that removing tariffs will have a long-term effect on U.S. inflation.
“The way you combat inflation is by either increasing supply relative to demand or…reducing demand relative to supply” says Michael Pettis, finance professor at Peking University and coauthor of Trade Wars Are Class Wars. “Imposing tariffs and removing tariffs do neither.”
Yet another person who may not be so keen on reducing tariffs against Chinese goods quite yet is U.S. Trade Representative Katherine Tai, who is leading trade negotiations with China. Tai told the U.S. House Ways and Means Committee last month, “No negotiator walks away from leverage, right?”
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.