Eliminating tariffs on imported Chinese goods will reduce US inflation by 1% over time and restore confidence in the economy, which could help President Joe Biden get to the polls, says the former ambassador American David Adelman.
“Inflation will be the number one issue in the US midterm elections in November,” Adelman told CNBC’s Squawk Box on Monday.
“While the president has limited ability to control inflation, there is an important tool in his toolbox,” said Adelman, who served as U.S. ambassador to Singapore during the administration. Obama.
“This is the ability to alleviate the pressure on the U.S. economy and U.S. consumers caused by such high tariffs that they impose more than $ 370 billion a year on Chinese imports.”
“Many economists say that over time, you can have a total drop of 1% in the CPI, which is very significant for American consumers,” he said, referring to the price index in the US. consumer, a key measure of inflation. “
While former President Donald Trump’s trade war with China was popular with U.S. voters on both sides of the aisle in 2018, Adelman said the effort was economically futile and did not create “significant trade benefits”. “.
“I think the proof is in the pudding. Not only was there no negative impact on the Chinese economy, but it had an impact on the US economy. It has acted as a boomerang in the US economy. Adelman, who is also CEO. of KraneShares, he said.
“Biden is beginning to realize, as the election unfolds, that it will be the most important economy for voters. If the president can do anything to ease the pressure, he should do it. Ultimately, a good economy should have a good policy, “he said.
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The U.S. government is reviewing Trump-era trade tariffs on Chinese products, a process that was triggered by legal provisions rather than a U.S. political will for a re-establishment of relations.
A growing number of economists, political observers and analysts have called on the Biden administration to cut tariffs as fears of inflation and recession grow. Former Treasury Secretary Larry Summers echoed Adelman’s comments early Sunday, saying raising tariffs on Chinese imports was “the right thing to do.”
“It will keep the prices [and] they allow us to take a more strategic approach when dealing with China. A 1% or more CPI discount will be needed over time, reducing rates is what needs to be done. I hope the administration finds a way to do that, “Summers told NBC News'” Meet the Press. “
Treasury Secretary Janet Yellen said some tariffs in China “had no strategic purpose” and that Biden was considering eliminating them as a means to cool inflation.
Not only did China fail to meet the targets set by the US in the trade deal, but the Peterson Institute for International Economy’s analysis shows that tariffs raised inflation for both consumers and northern producers. Americans.
During the year to November 2021, U.S. tariffs on Chinese products added 0.26 percentage points to the CPI, said Katheryn Russ, PIIE’s principal non-resident researcher in trade policy, in an analysis at beginning of the year. The year after the U.S. imposed tariffs on Chinese products, producer prices also rose 1 percent, according to Russ’s analysis.
In March, PIIE senior trade policy partner Chad Bown said China had not bought any of the additional $ 200 billion worth of U.S. exports it had pledged to buy under the US agreement. first phase.
As for the Chinese economy, tariffs fell slightly more than 0.5% of China’s GDP, Asia Economics chief economist Mark Williams said in a note last week .
“Some Chinese companies were able to evade them by redirecting shipments to the United States through third countries, mainly in Southeast Asia. This may have offset up to half of the drag,” Williams said.
Adelman, the former ambassador, said Biden could eliminate certain tariffs without the onerous task of asking Congress for permission in two ways.
It could order temporary exclusions from certain tariffs or sign an executive order to lift tariffs while protecting different U.S. industries with which China competed.
Eliminating tariffs will not only be good for American consumers in the short term and over time, but will help the president restore US-China relations.
David Adelman
former US ambassador
“Certainly, American consumers will be rewarded for doing so,” Adelman said.
“The elimination of tariffs will not only be good for American consumers in the short term and over time, but will help the president restore the US-China relationship.”
“Ultimately, having an economic compromise between the two largest economies in the world would be good for the world’s largest economy.”
However, Robert Daly, director of the Wilson Center’s Kissinger Institute on China and the United States, is skeptical about both Washington’s push to raise tariffs and its contribution to inflation.
He said political pressure to stay tough with China would outweigh Biden’s desire to care for consumers and relieve them of the burden of incurring a higher cost of living.
“If I just raised these tariffs unilaterally without getting anything from China, I would get a lot of pressure from Republicans, especially in the Senate, who would call it soft with China,” Daly said.
Like Daly, Williams of Capital Economics was also unsure that the abolition of tariffs would do much to tame inflation. He said doing so would only reduce the CPI by “a few tenths of a percent,” not 1 percent as others have predicted.
“Applying tariffs did not cause inflation to rise much,” he told CNBC.