Going Soft on China Will Not Reduce Inflation

Today on TAP: Why are some Biden advisers pushing this idea?

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The Biden administration is understandably eager both to reduce inflation and to demonstrate to the public that it is doing all that it can. Some actions that the administration has taken are good economics and smart politics—for instance, getting serious about the supply chain mess; directing the FTC to look into price manipulation in the oil industry and its futures markets; and using antitrust powers generally to crack down on economic concentration and opportunistic price-gouging.

But here is a really bad idea that some in the administration are pushing: cut some of the tariffs on China. For starters, these tariffs are key leverage in a long-term Biden strategy of pushing back on China’s extralegal mercantilism that has been so harmful to U.S. industry. Any unilateral disarmament on this front makes no sense. Despite the tariffs, China’s trade surplus with the U.S. has continued to grow.

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Secondly, the idea that cutting tariffs on Chinese imports would make any serious dent in the current inflation is wishful economics and foolish politics. Here are the numbers.

The tariffs total less than $80 billion a year, in a $21 trillion economy, and some of the costs are absorbed by U.S. companies. So even if the administration ended all of the tariffs—which nobody is proposing—that would be one-third of 1 percent of GDP. The actual proposed cuts are described as “surgical,” or less than one-tenth of 1 percent of GDP. This would have no real effect on inflation, and Biden would be ridiculed if he tried to spin cutting China tariffs as anti-inflation.

Yet his Treasury secretary, Janet Yellen, has been promoting this idea. In a July interview with The New York Times, oblivious to Biden’s larger China policy, Yellen said flatly, “Tariffs are taxes on consumers. In some cases it seems to me what we did hurt American consumers, and the type of deal that the prior administration negotiated really didn’t address in many ways the fundamental problems we have with China.”

Former Treasury Secretary Jack Lew, part of the old regime that so bungled U.S. China policy, has added his voice to this claim. He told CNBC: “I’ve thought from the beginning that the tariffs were an ineffective way to deal with [China’s] attacks on American consumers. And right now, with inflation being an issue, rolling back tariffs would actually reduce inflation in the United States.”

It is highly improbable that Lew would have gone public without checking with the current Treasury secretary and getting Yellen’s blessing.

The Biden advisers pushing this dubious idea are doing him no favor.

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