As the US debates China tariffs, Chinese economists can say “told you so”

The White House is debating whether to roll back some of the Trump-era tariffs imposed on roughly $350 billion of Chinese goods. It’s one prong of an attempt at curbing decades-high inflation, but it comes with hard tradeoffs.

Analysts at the Peterson Institute for International Economics estimate that removing the China tariffs could eventually lead to a 1% reduction in inflation — admittedly not a solution to the 8.6% rise in the consumer price index, but still a notable dent. Former White House economic adviser Jason Furman has said it would be “the biggest step” US president Joe Biden can take to bring prices down.

Others say it’s not so simple. The US trade representative Katherine Tai said this month that fighting inflation is a “more complicated issue than just tariffs” and that Washington needs to be “strategic” in the US-China trade relationship.

Analysts at the research organization Employ America argue that a shortage of physical capacity — think constraints on plants and equipment — is driving inflation. Dropping tariffs wouldn’t increase domestic production capacity. In fact, the industry group Alliance for American Manufacturing argues that cutting the tariffs would hurt efforts to rebuild critical supply chains as companies are incentivized to keep offshoring production to China.

For China, the desired outcome is clear: get rid of the tariffs.

Some Chinese economists are now observing America’s sky-high inflation and the debate over tariffs with a shade of schadenfreude.

“Little do they know that the tariff increase is no longer a strategic asset of the US, but a strategic burden,” Yao Zhizhong, a researcher at the state-run Chinese Academy of Social Sciences, wrote last week (link in Chinese). “…If the US cannot get rid of the strategic burden of tariffs as soon as possible… a soft landing will be difficult to achieve.”

Of course, that assessment comes with the benefit of hindsight. But even in the trade war’s early days, Chinese economists were predicting that the tariffs imposed under former US president Donald Trump would drive up US inflation.

“The tariff hike on Chinese products will be passed on to US prices, which will eventually be reflected as an increase in the CPI on the US side,” Yu Miaojie, an economist at Peking University, said in 2019.

Or as state-run China Securities Journal put it a year earlier (link in Chinese), the US risks “lifting a stone and smashing its own feet” by imposing sweeping tariffs on Chinese goods.

What will Biden do about trade tariffs on Chinese goods?

For now, the Biden administration is reportedly leaning toward easing some of the tariffs. China likely won’t hesitate to paint that as a win. As the Chinese Academy of Commerce’s Zhou Mi argued recently (link in Chinese) “the elimination of US tariffs on China is good for China.”

Inflation-taming or not, that would be a tough political pill to swallow in Washington.

Leave a Reply

Your email address will not be published. Required fields are marked *