As President Joe Biden debates lifting Trump-era tariffs on Chinese imports, his cabinet is divided over a politically charged issue that could affect November’s congressional midterm elections.
When he took office, Biden suggested he was in no rush to abolish the tariffs Donald Trump imposed on more than $300 billion worth of Chinese goods during his trade war with Beijing.
But as inflation climbed to 8.6 percent, the White House is debating whether lifting certain tariffs would help provide some relief to American consumers.
While the desire to curb inflation is acute, officials and experts familiar with the debate say there is deep division in the government, partly due to the fraught politics of China’s trade issues.
One camp, including Treasury Secretary Janet Yellen, argues that cutting tariffs would help reduce inflation. But another group, including U.S. Trade Representative Katherine Tai, is concerned that cutting tariffs would diminish influence in future negotiations with China over what Washington sees as unfair Chinese trade practices.
Unusually for the Biden team, which tends to be disciplined about division broadcasting, the debate is played out in public. This month, Yellen told Congress that some of the cuts may be warranted, as some tariffs were not strategic and were “paid by Americans, not Chinese.” But Tai told lawmakers there was a broader issue to consider.
“The Chinese rates are . † † significant leverage, and a trade negotiator never walks away from leverage,” said Tai.
People familiar with the debate said National Security Adviser Jake Sullivan is more hesitant to cut rates. But other officials, including trade secretary Gina Raimondo, have shown some support.
While Biden is desperate to help consumers, he wants to avoid a midterm election backlash from lawmakers who view cutting tariffs as weak for China.
“It seems very messy in terms of the tariff messages because you have different officials saying quite different things,” said Emily Kilcrease, a former USTR official now at CNAS, a think tank.
“Given that the clutter is evident in the public domain, I can only imagine what the internal debate is like.”
A crucial question is what impact rate cuts would have on lowering inflation. Sullivan said last month that Biden had asked his team to look at the relationship to support his decision.
Some of those advocating for rate cuts cite a study by the Peterson Institute for International Economics that found such a move would save households an average of $797. Tai criticized the study as “something in between fiction or an interesting academic exercise”.
One official said it was looking at trade liberalization broader than just China, while others said Biden had no intention of eliminating all Chinese tariffs.
Gerard DiPippo, a former CIA expert on China’s economy, said there was no “compelling reason” to maintain the tariffs, other than a desire to avoid political backlash. But he warned the deflationary effect would be small, saying consumers concerned about record high gas prices would hardly notice a difference in the price of imported goods.
“There’s no economic rationale for keeping the rates, but companies have already priced them in and there’s no huge benefit to abolishing them either,” said DiPippo, who now works at CSIS, a think tank.
A pending proposal, according to people who have discussed the matter with officials, would lower or lower tariffs on some consumer goods but add or increase tariffs for other products. The White House hopes that some sort of dual approach would help lower prices for consumers and partially isolate Biden from political backlash.
But companies are not too optimistic. Myron Brilliant, chief of international policy at the US Chamber of Commerce, said lowering rates could help families and small businesses hit by inflation. “We are seeing signs that they will take steps to lower some rates, but will it be big enough and deep enough? We shall see.”
Biden is coming under pressure from unions, one of his main constituencies, to maintain tariffs. In a recent letter to USTR, the Labor Advisory Committee — the official channel for organized labor to advise USTR on trade — said China had done nothing to justify the tariff lifting.
“If anything, President Xi and the Chinese Communist Party have only doubled their strategy,” wrote Thomas Conway, the committee chair.
Kilcrease said the idea that maintaining tariffs would maintain leverage was “strategically muddy” as the government believes the US has very little ability to change Chinese behavior. A senior US official said the government is not currently conducting high-level trade talks with Beijing.
But the official said USTR aimed to take a broader approach to China and not just view the debate through the short-term prism of inflation.
“How can we rearrange our position in China to be strategic for the long term and address some of the issues we are really concerned about, such as non-market practices and economic coercion?” she said. “The Purpose of the President . † † is to ensure that we realign these efforts to ensure that we focus on the long-term challenges with China. †
Craig Allen, chairman of the US-China Business Council, said Biden’s relationship with the unions suggested any rate change would be limited. Under Tai, USTR is also more aligned with unions than previous governments.
Biden said he wanted to be the most labor-friendly president in history. There will be costs in terms of inflation,” Allen said. “It is very likely that inertia will dominate. And if something is done, it will be marginal and half-hearted.”
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