The White House could cut Trump-era tariffs on over $335 billion worth of Chinese imports to bring down record inflation
The Biden administration is locked in a debate over whether to repeal Trump-era tariffs imposed on $335 billion worth of Chinese imports as politicians scramble for ways to tamp down runaway inflation.
Proponents of scrapping the trade war tariffs argue that reducing the levies could help bring down record high inflation, which hit 8.6% in May, by lowering the cost of imports like electronics, cars, and steel. But U.S. Trade Representative Katherine Tai—the White House official tasked with striking a new deal on trade relations between the world’s two largest economies—thinks the levies should remain.
“A trade negotiator never walks away from leverage,” Tai said in a Wednesday Senate hearing on a request for more funding for Tai’s office, arguing that the high tariffs are a “significant” tool in Washington’s ongoing trade negotiations with China.
The Trump administration first imposed the tariffs on Chinese imports in 2018, alleging that Beijing was engaging in “unfair” trade practices, such as dumping cheap goods in the U.S., and forcing foreign firms into sharing technology with local rivals in order to gain access to the Chinese market. China retaliated with tariffs of its own, targeting $158 billion of U.S. goods and escalating a trade war that remains unresolved.
In 2019, after months of negotiations, Washington and Beijing signed a “Phase One” trade agreement, in which China agreed to expand its purchases of U.S. goods by $200 billion by the end of 2021, using the 2017 level of imports as a baseline. In exchange, the U.S. reduced some tariffs—which covered over $550 billion worth of imports at the time—and delayed plans to impose new import duties.
The U.S. maintains an average tariff of 19.3% on roughly two-thirds of all China-sourced goods, the Peterson Institute for International Economics (PIIE) says, or on roughly $335 billion worth of goods. Yet, according to Chad Bown, senior fellow at PIIE, China had fulfilled none of its $200 billion obligation as of March.
Tai remains skeptical that China will follow through on its commitments.
“The United States has repeatedly sought and obtained commitments from China, only to find that lasting change remains elusive,” Tai said in her testimony to the Senate, arguing that the U.S. needs to “use all available tools, and develop new tools, to defend our economic interests and values.”
Tai has earlier admitted that trade negotiations on a potential “Phase Two” deal with China had stalled, and suggested the need for a new set of tools to preserve the U.S.’s “global competitive edge.” But Tai is one of the few officials willing to publicly defend the tariffs. Other members of Biden’s administration suggest that reducing import duties could help get U.S. consumer prices under control.
“Reconfiguring some of those tariffs so they make more sense and reduce some unnecessary burdens is something that’s under consideration,” U.S. Treasury Secretary Janet Yellen said on Sunday in an interview on ABC’s This Week. According to Yellen, the tariffs serve “no strategic purpose,” which might be accurate, considering how China has yet to honor the Phase One deal.
Outside the White House, economists are likewise split on whether easing tariffs is the best approach to take, in terms of reducing inflation. In March, PIIE economists suggested that reducing tariffs and other trade barriers by the equivalent of two percentage points would reduce inflation by 1.3 percentage points. Other economists argue that tariff relief is unlikely to have much long-term effect on inflation, which would require either increasing supply or reducing demand.
“Imposing tariffs and removing tariffs do neither,” Michael Pettis, finance professor at Peking University, previously told Fortune.