Will the U.S. lift retaliative tariffs against China?

President Joe Biden considers easing high tariff rates imposed on imported products from China.

Adopting a two-track measure with maintaining a strong stance against China remains a possibility in order to boost approval ratings ahead of the middle elections.

The aggravating global-scale inflation fuelled by the war between Russia and Ukraine has started to become a factor that can shift the tide of a trade war between the U.S. and China ？ the world’s two largest economies. Skyrocketing consumer prices is putting a toll on President Biden’s approval ratings, which is leading President Biden to consider lowering the import barrier against Chinese products. Considering such a move stands on from the assessment that lowering high tariffs will lead to cheaper import costs, which will consequently contribute to stabilizing consumer prices to a certain extent. A move to lower tariffs against Chinese products will effectively result in abolishing “retaliative tariffs”, which was introduced during the Trump administration. However, not only figures from the Biden administration but also other politicians are objecting the plan to normalize trade with China.

There are also prospects predicting President Biden to maintain a hard stance against China ahead of middle elections scheduled to take place later this year in November as anti-Chinese sentiment is strong among the American public in general. Many nations, including Korea with an economy relying heavily on trade, are closely observing how the trade war between the two largest economies will unfold as the U.S. and China have extensive influence on the world economy.

？ Will President Biden, plagued with sinking approval ratings, act to lower import barriers against Chinese products?

“We did not introduce the current level of high tariffs against China. That was done by the previous administration.”

This comment was made by President Biden during the press conference after the summit meeting between the U.S. and Japan that took place in Tokyo on May 23rd, which signalled lowering tariffs against imported products from China. According to the Peterson Institute for International Economics (PIIE), the average tariff rate the U.S. imposes on Chinese products stands at 19.3%, which is six times higher compared to the figure before the trade war between the U.S. and China sparked out in July 2018. During the same period, the type of Chinese products subject to U.S. tariffs dramatically increased to 66.4% from less than 1%. These indicate Chinese products are now facing increasingly higher import barriers and have become more expensive as well.

Such a phenomenon is resulting in the price of imported goods into the U.S. becoming more expensive and consequently translating into higher consumer prices. To make matters worse, global supply chain disruptions triggered by the Covid pandemic and the war between Russia and Ukraine are aggravating this situation, which is becoming a greater burden for the Biden administration.

Consumer prices in the U.S. rose 8.5% as of March this year compared to the same period of last year, which is the steepest increase the U.S. has seen in four decades. Although this pace of increase slightly slowed down with an 8.3% increase posted a month later in April, it is still far higher than 2.0% - the target set by the Federal Reserve. Pew Research Center, an American institution that conducts public opinion polling, surveyed the American people between April 25 and May 1 and asked the respondents to name the biggest challenge the country is facing. A vast majority, seven out of ten Americans pinpointed inflation as the greatest challenge the country needs to address. Skyrocketing consumer prices, which directly impact the everyday lives of Americans, are resulting in President Biden’s sinking approval ratings.

A two-day public opinion poll conducted on May 23rd and 24th by Reuters and Ipsos, a company specializing in public opinion polling, revealed President Biden’s approval rating plummeting by 6%p to 36% in only one week’s time, which is the lowest figure ever since the President took office in January last year. Such a sharp decrease is presumed to be attributable to President Biden’s move to consider easing high tariff rates applied to imported Chinese products. The PIIE analyzes abandoning high tariff rates by both the U.S. and China, which are directed to affect each other, will contribute to a consumer price decrease by 1.3%p.

？ Different perspectives exist within the Biden administration, along with a growing anti-China sentiment among the American public.

According to the American press, including the New York Times, different perspectives and opinions are being raised within the Biden administration on the tariff issue against China. Janet Yellen, the Secretary of the U.S. Treasury and Gina Raimondo, the Secretary of Commerce say lowering tariffs will be beneficial for the sake of businesses and consumers. On the other hand, Katherine Tai, the United States Trade Representative, mentioned in an interview with Bloomberg TV on April 24th asking for a “strategic approach” and maintained a rather cautious stance on the tariff issue. She argues lowering tariffs does not act as a significant stabilizer to have increasing consumer prices under control and a unilateral move by the U.S. to lower or completely eliminate tariffs is equivalent to removing all bargaining chips from the American side, especially in a situation of China showing no significant progress in moving away from unfair trade practices.

Nine Senators from both the ruling and the opposition parties, including Senator Robert Portman (Rep.) sent a letter to President Biden on May 25th stressing that “Rolling back tariffs against China will result in much less breathing space for the U.S. during future negotiations with China and American companies and their employees will likely experience a sudden bombardment of imported (Chinese) products in the U.S.” In fact, China’s implementation rate of agreements reached at the first U.S. ？ China trade agreement in 2020 merely stands at 57%. The main point of this agreement is requiring China to import an extra 200 billion dollars’ worth of American products and services for the next two years compared to the figure in 2017.

Amid China being criticized by the West for its attitude of turning a blind eye on Russia’s invasion of Ukraine, anti-China sentiment in the U.S. has swelled, which is a source President Biden cannot ignore ahead of the upcoming middle elections. The Pew Research Center conducted a survey from March 21st to 27th and found out that 82% of Americans have unfavorable opinions of China. This is a significant rise compared to 47% in 2018.

？ An introduction of more non-tariff barriers targeting China will trigger a second trade war

In his recent report titled “The possibility and the effects of the U.S. lowering tariffs against China” Woo-jin Kim, a senior researcher at the International Finance Centre Seoul described, “The current situation is adding pressure to President Biden to show a hard stance against China to secure political gains from the pro-Trump voters as the President is suffering from plummeting approval ratings.”

Nomura Securities analyzed the likelihood of President Biden introducing more non-tariff measures on non-consumer goods along with his efforts to partially lowering tariffs on Chinese consumer goods, thereby showing the public the efforts made to suppress inflation. Senior researcher Kim mentioned, “Whereas it is expected that partially lowering import tariffs will have a limited effect on curbing inflation, introducing more non-tariff measures can be the starting point of triggering a second trade war between the U.S. and China.”

The first trade war between the U.S. and China is received as a move that negatively affected global trade since the conflict disrupted the existing tight-knit supply chain networks. If the bilateral trade war expands with a second round of a trade war, this may additionally affect supply chain networks. Already suffering from mounting trade deficits arising from more expensive raw material imports, especially crude oil, due to the war between Russia and Ukraine, Korea’s external trading environment is expected to be faced with a crossroad between a favorable environment or vice versa depending on how the trade war between the U.S. and China unfolds.

[This news is provided by Yonhap News]