WASHINGTON – Mitch Spencer’s business costs skyrocket after US slap tariffs on billions of dollars in Chinese imports four years ago.
Spencer’s company, Polaris Rare Earth Materials, based in Carmel, Indiana, makes engine parts with its business partner at a factory in China and sells them primarily to consumers. automotive industry in the United States.
Components are subject to 25% tariff that then-President Donald Trump taxed some Chinese imports as part of a Trade war with Beijing. Spencer estimates that the duties have cost his company almost $500,000, money that he could otherwise have used to hire more engineers and grow his business.
Running a business while paying penalty fees is like “trying to run a race with ankle weights,” Spencer said. “It’s really hard to do what you want to do when you have this bleeding coming out the back and you have no control over it.”
With Inflation at 40-year highPresident Joe Biden is under pressure to cut tariffs from Trump in order to cut costs for entrepreneurs like Spencer and other American consumers. But lifting the tariffs carries big risks, politically ahead of November’s midterm elections and geopolitically with China, as economists debate how much it would lower consumer prices.
Trump imposed tariffs on $360 billion worth of Chinese-made goods starting in 2018 amid accusations that China steals American intellectual property and forces American companies to divulge their trade secrets as the cost of doing business in China.
The tariffs, which covered a wide range of industrial products and household items such as clothing, televisions and refrigerators, were part of a nearly two-year trade war between the world’s two largest economies.
Biden has been weighing the measure for weeks and is close to making a decision.
Cutting tariffs could undermine Biden’s efforts to boost American microchip manufacturing and other goods typically produced in China. The president has established close ties with organized labor, but the unions are opposed to changing the tariffs. Removing them would also put Biden at odds with Democratic candidates in the Rust Belt, such as the US Rep. Tim Ryan, who is running for Senate in Ohio and argues that removing the tariffs would be a mistake.
Lifting the levies could also expose Biden to attacks that he is soft on China as US accuses President Xi Jinping of human rights violations and Chinese companies engage in intellectual property theft.
The Biden administration is in “a tough spot,” said Rob Handfield, a professor of supply chain management at North Carolina State University.
“They want to maintain their political influence over China,” he said.
Tariffs Haven’t Worked, Economists Say
Tariffs don’t really give the US much political clout, since it never actually did what Trump said it would, said Derek Scissors, a China expert at the American Enterprise Institute, a Washington-based think tank.
the The US trade deficit with China has not improved. China shipped $353 billion more in goods and services to the United States last year than it imported in American-made products. China has also not put an end to its unfair trade practices. Furthermore, China responded with its own tariffs on US exports that have economically harmed farmers.
Scissors said he doesn’t think the tariffs will give the US much leverage. “But if you drop them and replace them with nothing, the signal to China is that the Americans can do nothing to punish us for our predatory economic policy.”
The White House has not indicated when a decision on tariffs will be announced. “I haven’t made that decision,” Biden told reporters on July 8. “We will review them one at a time.”
Biden said he hopes to speak with Xi as soon as this month.
A White House official, speaking on condition of anonymity, laid out the administration’s rationale for a reversal, saying Trump’s tariffs were “poorly designed and have higher costs” for families, small businesses and ranchers. without addressing China’s harmful trade practices.
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Impact on inflation
To what extent would reducing tariffs ease inflation in the US?
Not much, economists agree.
A report earlier this year from the Peterson Institute for International Economics concluded that the tariffs increased costs for US consumers and businesses only modestly and that removing them would reduce inflation by just 0.26%.
“This one-time drop in the price level would only cause a small, short-lived dent in headline inflation.” concluded the report.
Mark Zandi, chief economist at Moody’s Analytics, said repealing the tariffs might have a small effect on reducing inflation, but “wouldn’t be a game changer in any way.” Even lowering all fees would probably reduce inflation by only four or five tenths percent, he said.
“It will reduce inflation, modestly and temporarily, but it does open up these other problems that are significant,” said Zandi, who supports lowering the tariffs but warns it won’t result in “an outright policy change,” pointing to problems with China. and the potential impact on US manufacturing.
Historically, the US does not set trade policy because of short-term considerations such as inflation, said Jeffrey Bergstrand, a finance professor at the University of Notre Dame’s Mendoza College of Business. But repealing the tariffs could significantly lower the costs of some goods because the tariffs were so high, he said.
“That would lead to lower inflation at the consumer level, so I think there is a gain,” he said, adding that the move would also boost international trade. “It’s probably appropriate right now.”
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Biden’s Tariff Dilemma
Biden has political considerations in addition to the math of inflation.
The president has staked much of his economic vision on rebuilding America’s depleted manufacturing sector in the Midwest with semiconductor, electric vehicle and other clean energy plants. However, repealing the tariffs would give a boost to Chinese imports, not domestic production.
Ryan, who is running against Republican candidate JD Vance in a tough race in Ohio, sent a letter to the president last month urging him to keep the rates in place. He said the tariff reductions would “strip the United States of influence” with China and “inundate American businesses with a mass of imports that they may not be able to handle.”
“We cannot continue to allow China’s practices that cripple our workforce by allowing Chinese-made products to flood our markets.”
Biden, who has portrayed himself as the most union-friendly president in modern US history, would also upset his union allies.
“We think now is the wrong time to relax tariffs on China,” said Liz Shuler, president of the AFL-CIO, the largest union federation, arguing it would have only a “marginal impact on inflation.” She said the tariffs are a tool for the US to “get tough on China” and give US manufacturers an “advantage.”
Others, however, predict that there would be benefits to removing the tariffs.
Larry Summers, former Treasury secretary to President Bill Clinton and an economic adviser to the Obama administration, has criticized Biden’s economic policies, including last year’s COVID-19 rescue plan, for accelerating inflation. But when it comes to lifting tariffs on China, Summers backs the move.
“I think lowering fees is clearly a good idea,” Summers said on NBC’s Meet the Press in June. “It will keep prices low. It will allow us to take a more strategic approach to dealing with China.”
Lifting the rates could lower the consumer price index by a percentage point or more over time, Summers said, adding, “I hope the administration finds a way to do it.”
hand field, which forecasts that high inflation will persist for another six to nine monthshe said removing the tariffs could reduce the costs of auto parts, electronics, computers and a variety of other goods by 5% to 10%.
“I think it would be a good time to remove the tariffs personally,” he said. “We need all the help we can get because inflation is likely to continue for some time.”
But Hoyt Bleakley, an economics professor at the University of Michigan, said cutting tariffs as an “inflation-fighting policy” wouldn’t make much of a dent because tariffed products don’t represent a large enough part of the economy.
“To a certain extent, the tariffs are passed on to consumers. And so the prices of some products could fall,” Bleakley said. “That’s going to be a measurable effect. It’s just not going to be a big effect.”
Spencer, the Indiana-based manufacturer, sees another advantage in lifting the tariffs. Its foreign competitors have an unfair competitive advantage because they are not subject to the same duty, he said. Removing the tariffs would level the playing field for American companies.
“We’re not just competing with US customers, it’s an international market,” he said. “We have tough competition on every continent.”
But, “they’re not loaded with the same stuff that we are,” Spencer said.
Joey Garrison and Michael Collins cover the White House. Follow Garrison on Twitter @joeygarrison and Collins @mcollinsNEWS.
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This article originally appeared on USA TODAY: Will inflation slow if Biden ends Trump’s tariffs on China?