WASHINGTON – President Biden is weighing whether to rediscover some of the tariffs that former President Donald J. Trump imposed on Chinese products, in hopes of mitigating the fastest price gains in 40 years, according to senior government officials.
Business groups and some outside economists have been pushing the administration to relax at least some of the taxes on imports, saying it would be an important step the president could take to immediately reduce costs for consumers.
However, any action by the administration to raise tariffs is unlikely to affect an inflation rate that reached 8.6 percent in May, while the political ramifications could be severe. An influential study this year predicted that a move to raise tariffs could save households $ 797 a year, but administration officials say the real effect would probably be much smaller, in part because it doesn’t. there is no possibility that Mr. Biden backs all federal rights. government tariffs and other trade protectionist measures.
The discussion of tariffs comes at a precarious time for the economy. Persistent inflation has shattered consumer confidence, boosted stock markets in the bearish territory (20 per cent below its January high) and raised fears of a recession as the Federal Reserve moves rapidly to raise interest rates.
Some economists in the administration privately estimate that the tariff reductions that Mr. Biden believes they would reduce the overall inflation rate by as much as a quarter of a percentage point. However, as a sign of how big inflation has become a political issue, officials are weighing at least some partial relaxation anyway, in part because the president has few more options.
China’s tariffs are raising the price of goods for American consumers by essentially adding a tax on top of what they already pay for imported goods. In theory, eliminating tariffs could reduce inflation if firms reduce – or stop increasing – the prices of these products.
Biden said that taming inflation depends mainly on the Federal Reserve, which is trying to cool demand by making money more expensive to borrow and spend. The Fed is expected to raise interest rates on Wednesday, possibly its biggest rise since 1994, as it tries to control persistent inflation. The prospect of large rate hikes has frightened Wall Street, which entered bearish territory on Monday before consolidating on Tuesday.
Any move to adjust rates could have significant benefits. It could encourage companies to keep their supply chains in China, undermining another White House priority for returning jobs to the United States. And it could expose Mr. Biden, and his Democratic allies in Congress, to the attacks Beijing is unleashing when the U.S. economic relationship with China has become openly hostile, deepening a wedge issue for the midterm elections. term and the next presidential race.
China has not yet fulfilled the commitments it made as part of the US-China trade agreement negotiated by Mr. Trump, including not buying large quantities of natural gas, Boeing planes and other American products. Mr. Trump imposed tariffs on most U.S. imported products from China as part of a lobbying campaign to force China to change its economic practices. More than two years later, the United States maintains a 25 percent tariff on some $ 160 billion worth of Chinese goods, while another $ 105 billion, mostly consumer goods, is taxed at 7.5 percent.
While Mr. Biden has criticized the way Trump used tariffs, he has also acknowledged that China’s economic practices pose a threat to the United States.
Understand inflation and how it affects you
Business groups such as the U.S. Chamber of Commerce and economists such as Treasury Secretary Lawrence H. Summers under President Bill Clinton have urged the White House to repeal as many tariffs as possible, saying it would help consumers cope. rising prices.
Summers and others cited the March study on the issue of economists at the Peterson Institute for International Economics, which argued that a “feasible” tariff elimination package, including the repeal of a number of taxes and business programs, not just those. applied to China: could lead to a one-off reduction in the consumer price index of 1.3 percentage points, which represents a gain of $ 797 per US household.
In an interview, Summers said tariff cuts were “probably the most powerful microeconomic or structural action the government can take to reduce prices and inflationary pressure relatively quickly.”
But even those within the administration who support tariff relief are skeptical that the measure would produce almost the amount of relief that Mr. Summers and others have predicted.
“I think some of the reductions may be justified and could help lower the prices of things that people buy and that are heavy,” Treasury Secretary Janet L. Yellen, an advocate for some tariff cuts, said last week. a committee of the House. “I just want to make it clear that I don’t think tariff policy is a panacea for inflation.”
Ms Yellen met on Tuesday with the National Retail Federation’s board of directors, which has long argued against tariffs and recently argued that removing them would reduce inflation.
One of the key questions is whether companies that are granted a tariff reduction would transfer these savings in the form of lower prices or choose to absorb them as profits. So far, consumers have continued to pay more for everyday items, a fact that corporations have cited in earnings calls with investors as a reason why they can charge more.
David French, senior vice president of government relations for the National Retail Federation, said the administration had tried to understand how quickly tariff cuts would translate into price changes and sought assurances from retailers that any savings would be passed on to U.S. consumers. .
“I think in the mind of the administration, there will be a drop in prices and the money will come out of the price,” he said. “I’m not sure you’ll see such a dramatic change like this.”
Instead of lowering prices, for example, stores may choose to keep prices even higher. Retailers “will do everything they can to demonstrate dramatic price changes whenever possible,” but they still face accumulated pressures on the supply chain in terms of cost, he said.
Rising prices have affected Americans throughout the economy, depleting the purchasing power of households and contributing to a steady decline in Mr. Biden’s approval ratings. The consumer price index rose 8.6 percent in May from a year earlier, its fastest growth rate in 40 years. Mr Biden says he has made fighting his inflation his top economic priority.
Last week, Biden announced a two-year pause in tariffs on imported solar panels, which could reduce costs for domestic consumers but effectively anticipate a Department of Commerce investigation into manufacturers’ illegal business practices. Chinese.
Domestic trade groups, labor leaders and populist Democrats such as Ohio Rep. Tim Ryan, who is stuck in a competitive race in the Senate, have pushed Mr. Biden to keep tariffs on. Mr. Ryan held a press conference on Tuesday urging Biden not to cede any economic land to Beijing.
Economists disagree on how much relief the administration could 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, meaning your dollar won’t go as far tomorrow as it does today. It is usually expressed as the annual change in the prices of everyday goods and services such as food, furniture, clothing, transportation and toys.
What causes inflation? It may be the result of increased consumer demand. But inflation can also rise and fall depending on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Rapid price increases pose problems, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation often leads to stock problems. Historically, financial assets in general have gone bad during inflation hikes, while tangible assets such as homes have maintained their value better.
This is partly due to the fact that the inflation calculations cited by Mr. Summers and others include a much broader policy relaxation than what Mr. is really considering. Biden, including the popular “Buy America” programs that require the federal government and certain contractors to buy American products. goods, even if they are more expensive.
The Peterson Institute study is “something between fiction and an interesting academic exercise” that does not capture the real pain that Americans feel, said U.S. Trade Representative Katherine Tai in an interview on last month.
Kim Glas, chairwoman of the National Council of Textile Organizations, who has pressured the administration to keep tariffs, said tariffs in her industry were “cents per dollar” for Chinese products that were already priced much lower. to the alternatives of other countries.
Tariff prices apply to the price of the goods entering the border, not to the final retail price charged in a store. For a pair of jeans from China, the import price was $ 4.28 in the first two months of 2022, meaning the 7.5 percent tariff added just 32 cents to the cost of consumer, said Ms. Glas. It was the retail margin, which can bring jeans to $ 30, $ 40 or $ 100, which accounts for most of the sticker shock, he added.
The issue has divided Mr Biden’s closest advisers. Mrs. Tai; Jake Sullivan, national security adviser; Tom Vilsack, Secretary of Agriculture; and others have argued that lowering taxes is …