This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

https://www.barrons.com/articles/tariff-cut-china-biden-inflation-51657226617

About the author: Brian P. Klein is the founder of RidgePoint Global, a strategic advisory firm, and a former U.S. diplomat.

There’s a lot going wrong in the U.S.-China relationship of late—from Beijing’s continued support for Russia’s unprovoked war on Ukraine to new FBI warnings of political interference in U.S. local elections. Add to that a litany of perennial issues including a politicized China business environment for foreign firms and U.S. sanctions on goods that have ties to Xinjiang forced labor. The list is long and growing. 

One seemingly bright spot at this apex of trans-Pacific, great power rivalry is that the Biden administration, by some estimates, is considering dropping tariffs on roughly $10 billion of imported Chinese goods. That’s a small subset of about $370 billion in goods currently affected. Even as a symbolic act, that’s hardly a strong signal for China to end the trade war, and it won’t move the needle in containing U.S. inflation or improving bilateral relations.  

The Biden administration will need much bolder action on trade to unwind the mainly punitive tariff war instituted under, and continued since, the Trump years. There needs to be large scale cuts on the table to engender serious diplomatic engagement. Doing so would create the leverage the administration needs to make headway on a host of other contentious issues. The removal of a fraction of the tariffs will just perpetuate the view that there is no coherent long-term China strategy.

Limited cuts also won’t help lower U.S. inflation, which is what the current White House deliberation aims to accomplish. Inflation is hovering around 8%. The Fed is aggressively raising rates to counter the economic pressure, risking risks of a recession. But costs are going up primarily because Covid is continuing its world-domination tour, wreaking havoc on global supply chains, and because Russia’s invasion of Ukraine is still rocking energy markets. 

U.S. tariffs on Chinese goods have nothing to do with either. Removing them on a limited number of manufactured goods, agricultural products, and other consumer-oriented products won’t affect the rising food, fuel, and shelter costs that matter most to Americans.

A minor nod to Beijing that broader tariff reductions may be coming is also unlikely to move the dial on the contentious issues that confront the world’s two largest economies. Washington currently imposes import taxes on 66% of Chinese goods. Beijing does the same on 58% of U.S. goods. 

Trade policy, done effectively, can be an aspect of a broader U.S. foreign policy, not only to open and sustain markets for U.S. producers and increase choice for American consumers, but to create leverage to gain concessions on other bilateral issues. That needs to be the goal now. The prospect of more open and free trade will empower exporters and importers, trade associations, and consumer advocacy groups, even in a closed political system such as China’s, to push for concessions. Reversing the Trump-era trade war with China could open the door to greater dialogue on other issues that matter to U.S. interests, including Beijing’s increased militarization in the region.

But tariff wars are an imperfect tool. They often fail to realize even their limited economic ambitions. Politicians usually want import taxes to shift the balance of trade to domestic manufacturers or exporters from other like-minded countries . And yet, time and again tariffs make prices for consumers go up. Unless the taxed imports can be substituted from other countries or suppliers, the higher costs are just transferred down the line. They have short-lived political value and rarely impose serious enough economic impacts to make much of a difference.

The Trump administration wielded tariffs over a wide set of goods as a purely punitive measure. China simply reacted in kind while experiencing a negligible impact to its own economy. If the Biden administration wants to use trade enhancements to signal that relations could change, then the cuts should cover all goods that have no clear connection to unfair trade practices. 

The U.S shouldn’t just unilaterally unwind import taxes or even agree to small-scale reductions. They must be tied to real changes in the Chinese market that will have a material effect on U.S. exported goods and services. That includes sustained market opening and removal of nontariff barriers to trade. Historically these have been very difficult to achieve. Even when the U.S. had high tariffs in place under the Trump administration, USTR’s negotiations with China failed to use them to their full potential. The net result was no result. China maintained its domestic advantages over foreign firms and tariffs stayed in place. 

It’s easy to see a scenario where Chinese companies regain open access to U.S. markets while U.S. companies struggle to make gains against a rising wall of Chinese political forces. That would be a serious policy failure.

Incremental steps being considered on a very small subset of tariffs will be seen as a weak gesture overseas, and a purely domestic political play at home. Either Beijing agrees to a more level playing field, or Washington should continue promoting trade with more like-minded countries. There’s little to be gained by straddling the fence.

Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.

An error has occurred, please try again later.

This article has been sent to

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.