WASHINGTON – President Biden is considering whether to lift some of the tariffs imposed by former President Donald Trump on Chinese goods, hoping to mitigate the fastest rise in prices in 40 years, according to senior officials.
Business groups and some outside economists are pushing the administration to ease at least some of the import taxes, saying it would be a significant step the president could take to cut costs immediately for consumers.
Yet any action by the administration to raise tariffs is unlikely to put a big dent in inflation, which reached 8.6 percent in May – while the political repercussions could be severe. An influential study this year predicts that switching to tariff increases could save households $ 797 a year, but administration officials say the actual effect is likely to be much smaller, in part because Mr Biden has no chance of repealing it. all federal government tariffs and other protectionist trade measures.
The discussion of tariffs comes at an uncertain time for the economy. Steady inflation has shattered consumer confidence, pushed stock markets into bearish territory – 20% below their January high – and fueled fears of a recession as the Federal Reserve moves fast to raise interest rates.
In particular, some economists in the administration estimate the tariff cuts, which Mr Biden believes would reduce the overall inflation rate by just a quarter of a percentage point. Still, as a sign of how big a political problem inflation has become, officials are considering at least partial relief anyway, in part because the president has few other options.
Chinese tariffs raise the price of goods for American consumers by essentially adding tax on what they already pay for imported goods. In theory, the elimination of tariffs can reduce inflation if companies reduce – or stop raising – the prices of these products.
Mr Biden said that curbing inflation depended mainly on the Federal Reserve, which was trying to cool demand by making money more expensive to borrow and spend. The Fed is expected to raise interest rates on Wednesday, probably making its biggest increase since 1994 as it struggles to keep up inflation. The prospect of a large increase in interest rates frightened Wall Street, which entered a bear market on Monday before stabilizing on Tuesday.
Any move to change tariffs can lead to significant trade-offs. This could encourage companies to maintain their supply chains in China, undermining another White House priority for returning jobs to America. And that could expose Mr Biden – and his Democratic allies in Congress – to attacks that he allowed Beijing to escape when America’s economic relations with China became openly hostile, deepening the issue of by-elections and the next presidential race.
China has not yet fulfilled its commitments as part of the trade agreement between the United States and China, which Mr Trump has negotiated, including the non-purchase of significant quantities of natural gas, Boeing aircraft and other US products. Mr Trump has imposed tariffs on most of the products that the United States imports from China as part of a pressure campaign to force China to change its economic practices. More than two years later, the United States retains 25 percent tariffs on about $ 160 billion in Chinese products, while another $ 105 billion, mostly consumer goods, is taxed at 7.5 percent.
While Mr Biden criticized the way Mr Trump used tariffs, he also acknowledged that China’s economic practices posed a threat to America.
Understand inflation and how it affects you
Business groups such as the US Chamber of Commerce and economists such as Lawrence H. Summers, finance minister under President Bill Clinton, have called on the White House to repeal as many tariffs as possible, saying it would help consumers cope with rising prices.
Mr Summers and others applauded the March study by economists at the Peterson Institute for International Economics, who said a “feasible package” of tariff elimination – which includes the abolition of a number of levies and trade programs, not just those annexed to China – could lead to a one-time decline in the consumer price index of 1.3 percentage points, amounting to a profit of $ 797 per US household.
In an interview, Mr Summers said tariff cuts were “probably the most powerful microeconomic or structural action the administration can take to reduce prices and inflationary pressures relatively quickly”.
But even those in the administration who support the tariff easing are skeptical that the move will lead to somewhere close to the amount of relief Mr Summers and others predict.
“I think some cuts could be justified and could help reduce the prices of things that people buy that are burdensome,” Janet L. Yellen, finance minister and supporter of some tariff repeals, told the committee. of the House of Representatives last week. “I want to clarify that, to be honest, I do not think that tariff policy is a panacea for inflation.
Ms Yellen met on Tuesday with the board of directors of the National Retail Federation, which has long challenged tariffs, and recently said removing them would ease inflation.
One of the key questions is whether the companies that have been granted tariff concessions will actually transfer these savings in the form of lower prices or will choose to use them as profits. So far, consumers continue to pay more for everyday items, a fact that corporations cite in profit talks with investors as a reason they may charge more.
David French, senior vice president of government relations at the National Retail Federation, said the administration has been trying to figure out how quickly tariff cuts will lead to price changes and is seeking assurances from retailers that all savings will be transferred to American consumers.
“I think the administration thinks there will be a return on prices and the money will go down the price,” he said. “I’m not sure you’ll see a dramatic change like this.”
Instead of lowering prices, for example, stores may choose to hold back on price increases even more. Retailers “will do as much as possible to demonstrate dramatic changes in pricing where possible”, but still face accumulated pressure in the supply chain in terms of costs, he said.
Rising prices have shaken Americans across the economy, depleted families’ purchasing power and contributed to a steady decline in Mr Biden’s approval rating. The consumer price index rose 8.6% in May from a year earlier, its fastest growth rate in 40 years. Mr Biden says fighting inflation has been a top economic priority.
Last week, Mr Biden announced a two-year break on tariffs on imported solar panels, which could cut costs for local consumers, but which effectively outpaced the Commerce Department’s investigation into illegal trade practices by Chinese manufacturers.
Domestic trade groups, workers’ leaders and populist Democrats such as Tim Ryan of Ohio, who is locked in a Senate race, have forced Mr Biden to keep tariffs. Mr Ryan held a press conference on Tuesday, urging Mr Biden not to cede its economic base to Beijing.
Economists disagree on how much inflation relief the administration can get by eliminating tariffs.
Frequently asked questions about inflation
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What is inflation? Inflation is a loss of purchasing power over time, which means that your dollar will not go as far tomorrow as it does today. It is usually expressed as an annual change in the prices of everyday goods and services such as food, furniture, clothing, transport and toys.
What causes inflation? This may be a result of growing consumer demand. But inflation can also rise and fall on the basis of developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? Depends on the circumstances. Rapid price increases lead to problems, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation usually creates problems for stocks. Financial assets generally performed poorly during the inflation boom, while tangible assets such as houses maintained their value better.
This is partly due to the fact that the inflation estimates cited by Mr Summers and others include far broader policy easing than Mr Biden is actually considering, including popular Buy America programs that require the federal government and some contractors to buy US-made goods, even if they are more expensive.
The Peterson Institute study is “something between fiction or an interesting academic exercise” that does not capture the real pain Americans are experiencing, said United States Trade Representative Catherine Ty in an interview last month.
Kim Glass, president of the National Council of Textile Organizations, which lobbies the administration to keep tariffs, said in her industry, tariffs amount to “pennies per dollar” for Chinese goods, which are already priced far below alternatives from other countries.
Tariff prices apply to the price of goods arriving at the border and not to the final retail price charged in a shop. For a pair of jeans from China, that import price was $ 4.28 in the first two months of 2022, which means that the 7.5 percent tariff added only 32 cents to the consumer price, Ms. Glass said. It is the retail markup – which could bring jeans up to $ 30, $ 40 or $ 100 – that accounts for most of the shock of stickers, she added.
The issue divided Mr Biden’s closest advisers. Mrs. Ty; Jake Sullivan, National Security Adviser; Tom Wilsac, Minister of Agriculture; and others claim that the abolition of taxes is …
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