Tariffs on China are no panacea

A debate has been unfolding in the White House recently on what to do about the tariffs the Trump administration left on hundreds of billions worth of imports from China. Does the Biden team get rid of them as a way to fight inflation? Or do they keep them with the hope of leveraging a new trade deal with Beijing? If reports are correct, the Biden administration may remove some of the existing tariffs but also begin a process that could lead to the creation of new ones.

The White House needs a better look at what the current tariffs have achieved before considering adding new ones. They’ll find these tariffs have had no meaningful impact on the U.S.-China relationship — economic or otherwise — and that getting rid of just a few of them will have almost no effect on inflation.

Inflation is the highest it’s been in a generation. This has forced the White House to think about ways that government policies have driven up prices in recent years. Reducing tariffs is just one possible way given that these taxes tend to disproportionately harm women and lower-income households.

Some experts suggest that getting rid of all the recent tariffs on imports from China could help reduce inflation between 0.3 percent and 1 percent. Unfortunately, the Biden administration may only remove tariffs on less than 1 percent of these tariffed goods from China. That means it would affect such a small amount that it would hardly make a blip on price indexes. In other words, it would be economically meaningless.

Prices in the U.S. are up 9 percent this year. Import prices were up 11 percent in May. Higher import prices are being driven mainly by fuel costs and not from trade with China. So, even if the White House gets rid of these China tariffs, it would still be left with an energy crisis. To have any effect on inflation, even if small, the White House would need to go all-in on tariff reduction.

Reducing the tariffs on goods from China can be politically difficult, though. Many voices — including the architect of the China tariffs and former trade czar Robert Lighthizer — continue to argue the tariffs are more than just a tax. He recently argued that the tariffs were a multifaceted tool, including: for negotiating with Beijing, punishment for years of theft, and a way to encourage companies to invest in the U.S. But like many policies in Washington, intention doesn’t always match reality.

Perhaps the tariffs were successful in getting the Trump administration a trade deal with Beijing, but the tariffs have also failed to make sure Beijing lived up to all its commitments of that deal. The tariffs no longer create leverage over Beijing because the relationship between Washington and Beijing has changed. Xi Jinping has set China on a path towards belligerence and conflict.

While these tariffs have been in place for years now, there’s little evidence to suggest they’ve stopped any Chinese theft or espionage. The FBI noted earlier this year that it opens a new China-related counterintelligence investigation every 12 hours. Just this month, at a joint press conference with the FBI, the United Kingdom’s MI5 stated it’s running seven times as many investigations against Chinese activity of concern than it was in 2018. U.S. customs continues to seize $1 billion worth of counterfeit goods imported from China and Hong Kong every year. If the tariffs were meant to convince Beijing to crack down on illicit activities, it’s not working.

Maybe the tariffs initially had some effect on convincing companies to move production out of China and into neighboring countries in Asia, such as Vietnam. But four more recent events have had an even greater effect on business sentiment that the tariffs pale in comparison: the impact on supply chains from COVID-related delays; the lockdowns in places such as Shanghai; the growing U.S.-China technology competition; and sanctions related to China’s human rights violations. In a way, all of these are symptomatic of the Chinese Communist Party’s growing belligerence or Beijing’s self-harming restrictions. Meanwhile, tariffs mostly have been shrugged off and U.S.-China trade is as large as it’s ever been.

There’s no denying that U.S.-China relations are deteriorating. But it would be foolish to think more tariffs are the solution to our problems when the current tariffs serve no strategic purpose. We should stop trying to convince ourselves otherwise. The Biden administration should reconsider tariffs as a tool, get rid of the existing ones, and find a new approach.

Riley Walters is deputy director of the Japan Chair at the Hudson Institute.