USA and China: the issue of tariffs on Chinese goods

US and China: The issue of tariffs on Chinese goods.

Rising inflation forces Biden to consider removing tariffs on Chinese goods. A decision he will have to make at a difficult time in Sino-US relations.

1. A fixed thought for Biden: stop inflation.

US President Joe Biden has instructed his administration to consider lifting some tariffs on imports from China in an effort to curb record-breaking inflation. Washington plans to maintain some of the tariffs on steel and aluminium to protect the domestic steel industry. The US president recently expressed his intention to remove some of the tariffs imposed on Chinese goods at the height of the US-China trade war during Donald Trump's presidency. These were introduced in 2018 and 2019 in an attempt to reduce the US trade deficit with China.

Trump's tariffs initially targeted steel and aluminium after Washington accused China of dumping these products on global markets at low rates. They were later expanded to target consumer goods such as clothing and sporting goods. This resulted in higher prices for these goods in the US. In 2021, Biden cancelled some tariffs but left most of them in place. The idea put forward by industry groups that tariff cuts could reduce costs for businesses and consumers caught the attention of the US administration.

2. Biden's campaign promises.

Two years ago, then-candidate Biden promised to remove the Chinese tariffs imposed by Trump if he won the White House but later decided to leave them in place.

Most economists believe that 'those tariffs are essentially paid for by American consumers and businesses. The Tax Foundation estimates that the tariffs have imposed nearly $80 billion in new taxes on Americans from 2019 forward, cutting GDP growth by 0.22% and 'killing' 173,000 full-time jobs. Despite costly subsidies to compensate for their losses, US farmers have also been hit hard.

But it is a political gamble for Biden. Easing tariffs before the mid-term elections next November would provide an assist to Republicans, who would accuse the president of using too soft a stance with China. The unions would prefer to keep the tariffs in place.

3. A move that will cool inflation?

However, getting rid of Chinese tariffs could help Biden lower the inflation rate. The question is how far the US President is willing to go.

A recent study by the Peterson Institute for International Economics shows that removing Chinese tariffs could ease inflation by one percentage point. But it will take time for the effect to kick in.

Biden seems to be intent on cutting tariffs on Chinese goods worth about $10 billion, or just 3% of the total. Such a move will, however, have little bearing on the inflation rate and as Dollar put it, 'would amount to doing absolutely nothing’.

In recent weeks, senior US and Chinese officials have discussed the Trump administration's tariffs on Beijing. Vice Premier Liu He, President Xi Jinping's right-hand man, spoke with US Treasury Secretary Janet Yellen during a video call. At the centre of the talks were economic sanctions and tariffs. The lifting of tariffs and sanctions and the fair treatment of Chinese companies are areas of concern for China, Liu He emphasised.

Inflation is as much a problem for Beijing as it is for Washington, and fluidifying trade after two years of a pandemic and with an ongoing war would benefit both economies. China would have something to gain, the zero-Covid strategy and the lockdown of ports and cities have almost paralysed the economy. Hence the need for a gradual revision of the tariff policy.

4. How credible is an easing of the tariff policy?

At the moment, there are no signs that Beijing would change course should a tariff workout by the US administration really be implemented. Before making a move, Xi Jinping will wait for the Communist Party Congress to grant him the coveted third term in the autumn, and before that event it is difficult to foresee major changes. The Chinese leader could only really be interested if giants such as Huawei were again allowed full access to the US market. This option is unlikely as Biden would have internal backlashes. Without forgetting that the crux of the matter is still Taiwan, and the visit of House Speaker Nancy Pelosi has done nothing but inflame relations between the two superpowers.

Translated by Margherita Folci