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Biden’s politically perilous choice on trade with China

The president has been cautious in his next move, even as some of his own economic officials beat the drum for relief from at least some of the 25% tariffs former President Donald Trump imposed on more $350 billion in Chinese imports, ranging from industrial machinery and parts to textiles to meat and other foods.

“We’re discussing that right now,” the president said of tariff relief last week, but “no decision has been made.”

When asked in a later Senate hearing if the administration was moving to lift some of the tariffs, Commerce Secretary Gina Raimondo said it was “conceivable.” This followed comments by Treasury Secretary Janet Yellen that lifting tariffs could have “desirable effects” on inflation, and remarks by a senior National Security Council economics official, Daleep Singh, who said tariffs on consumer goods like bicycles or clothing “serve no policy purpose.

These officials, however, face opposition from the very agency that administers the tariffs — the office of the U.S. Trade Representative. Its leader, Katherine Tai, has publicly pushed back against the idea that lifting tariffs would reduce inflation and said it would cost her influence at the negotiating table with Beijing.

The USTR’s arguments are closely tied to those of US-based unions and industries, which have benefited from the tariffs and intensified their pressure on the White House to keep them. Last week, the head of a major U.S. textile group publicly urged the administration to ignore growing calls for tariff relief during an appearance with a senior agency official.

“Our industry would be very concerned about this approach,” Kim Glas, CEO of the National Council of Textile Organizations, told Deputy U.S. Trade Representative Susan Bianchi. “We think that would reward China…and do nothing to solve the inflation problems.”

Labor has also urged the administration publicly and behind closed doors to keep tariffs in place. The AFL-CIO on Monday sent a letter to lawmakers urging them to remove provisions from proposed economic competitiveness legislation that would nullify some of the Chinese tariffs, and labor allies urged the White House to keep the tariffs as well.

“Making it easier for more Chinese products to enter the United States will only undermine the goal of restoring our manufacturing base and creating jobs,” Mike Wessel, chairman of the Labor Advisory Committee to the United States, told POLITICO. from the USTR and the Department of Labor.

The pushback highlights an economic dilemma for the Biden administration. Lifting at least some tariffs would give the White House a visible example of action to fight inflation, the main concern of voters ahead of the midterm elections. And that would please a vocal group of free trade lawmakers and corporate lobbyists, who have been pushing for tariff relief since Biden was sworn in. These forces have been encouraged by recent comments from Biden officials suggesting that tariff relief could at least arrive for small items.

“Why do we have customs duties on bicycles, clothes or underwear? Singh, who has since taken time off from the White House, said during his appearance last month. “There’s a whole range of assets… where it’s not obvious to me at least what strategic purpose they serve. And China too has retaliatory tariffs that also lack any strategic purpose I can discern.

But the lowering of duties also risks angering domestic workers and union members, whom the White House has assiduously sued. In recent weeks alone, the president has warned big business that the administration will support their workforces seeking to unionize and hosted a new generation of union organizers to the White House. These same groups of workers, however, have always been skeptical of free trade for fear that their union jobs will be shipped overseas.

Proponents of lower tariffs, like the Chamber of Commerce and other multinational trade groups, point to recent estimates that cutting all or part of the tariffs on Chinese imports could cut a percentage point or more. ‘inflation. Economists running the models say it likely has more impact than any single policy available to Biden.

“It’s bigger than anything the White House or [Federal Reserve] could do within six months,” said Jason Furman, a Harvard economist and former adviser to President Barack Obama, citing estimates from the pro-free trade Peterson Institute for International Economics, which estimated that the tariff relief could reduce inflation by more than a full percentage. indicate. “It’s the biggest tool they have, everything else is quite small compared to it.

Not everyone agrees. Some protectionist economists say other factors, such as port safeguards and chip shortages, are the main drivers of inflation and will dampen any impact from lower tariffs. And they point out that inflation was not an issue during the first years the tariffs were in place. Tai made the same point during an appearance at the Milken Institute conference earlier this month, where she publicly criticized the Peterson study as “something between fiction and an interesting academic exercise.”

“Since we regulate trade and governments regulate what crosses borders, we have tariffs in one form or another. Every country still has tariffs,” she said. “We haven’t always had inflation. So I really need to question the premises of this study.

The public disagreement between some of the administration’s economic officials reflects a long-running dispute over whether to maintain Trump’s rights to Chinese goods as well as the broader strategy for confronting Beijing.

Since last year, Treasury and Commerce officials have pushed for tariff relief, as have members of Biden’s National Security Council, advocating that Biden reduce tariffs on consumer goods while increasing them on China’s most heavily subsidized industries, such as solar panels and semiconductors. But the president ultimately backed the USTR’s approach – keeping the tariffs in place while Tai pushed for trade concessions from Beijing.

The debate is resurfacing in the public eye now that the White House is refocusing its attention on China policy, after an inaugural year consumed with the Covid-19 response. Russia’s invasion of Ukraine in February, in particular, forced the administration to grapple with a changing world order and China’s outsized role in it. The administration was ready to launch a new tariff investigation in March, but plans were put on hold for fear of provoking Beijing at a time when the United States was trying to coax the Chinese leadership away from Moscow.

The State Department is also preparing to roll out its long-awaited China strategy, delayed more recently by Secretary of State Antony Blinken’s fight against Covid. And in response to some of the pandemic’s supply chain issues, Congress is considering legislation to improve U.S. manufacturers’ competitiveness with China, including a provision that could force the administration to roll back some of the tariffs.

The president himself will travel to the region next week, where he will meet the leaders of two of America’s staunchest Asian allies – South Korea and Japan.

This global context has intensified the scrutiny of the tariff review process that the USTR office launched this month. By law, the tariffs will expire this summer unless industries ask the USTR to extend them, and the agency agrees. USTR domestic industries notified earlier this month that they would start collecting feedback, after which the agency could decide to extend, modify or eliminate the tariffs. The timing of this review, however, will not be made public until the first set of tariffs expires in July.

Tariff relief could result from that review, a new tariff investigation that also targets subsidized Chinese industries, or an executive directive from Biden himself. It remains unclear which – if any – of the options the White House will choose, but its trade officials hint that something is about to come down the drain.

“You’re going to see us pivot to…putting forward more of a Biden approach, where we’re really trying to address some of the things that the president is deeply concerned about,” Bianchi said when pressed on China at the textile event. . . “I think you will continue to see us come up with a thoughtful approach to all of these issues. It is a work in progress.

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