Tariff Debate Reveals Biden’s Problems With China Trade

WASHINGTON — President Biden’s decision Monday to try to join Asian partners to form an economic bloc against China comes at a time of frustration over his government’s economic approach to Beijing, which has seen some advisers to the White House urging the president to renounce the Trump policies of the era he criticized and others argued that Mr. Biden risks being viewed as weak to China if he gives in.

Some officials have become frustrated that U.S. trade relations with China are still governed by President Donald J. Trump’s policies, including tariffs imposed on more than $360 billion worth of products and trade commitments made during a deal the United States and China signed in early 2020.

Rapid inflation has made concerns about the United States’ economic approach to China urgent. Treasury Secretary Janet L. Yellen and other officials have argued that the full range of tariffs served little strategic purpose and could be lifted, at least in part, to ease the financial burden on businesses and consumers.

But those ideas have been met with resistance from other senior government officials, such as some top White House officials, the US Trade Representative and unions. They argue that scrapping the tariffs — introduced to punish China for its economic practices — would be a unilateral disarmament, as Beijing has yet to address many of the policies that led to the measures. With the midterm elections approaching, some government officials are concerned that cutting tariffs would leave Democrats vulnerable to political attack, according to interviews with more than a dozen current and former officials.

Business is also losing patience with the lack of a clear trading strategy, nearly a year and a half after Mr Biden’s presidency. Executives have complained about a lack of clarity, which they say makes it difficult to determine whether to continue investing in China, a critical market.

The challenges of figuring out how to deal with China’s trade practices have become more difficult during the Russian invasion of Ukraine. The United States was originally on track to make changes to its trade relationship with China in early 2022, a senior government official said, but with Beijing joining Moscow, Biden thought it wise to watch events unfold in Ukraine regarding the world economy and allies of the US.

Some elements of the administration’s trading strategy are becoming clearer this week. Biden announced in Japan on Monday that the United States would begin talks with 12 countries to develop a new economic framework for the Indo-Pacific region. The countries would aim to form a bloc that would provide an early warning system for supply chain problems, encourage industries to become decarbonised, and provide US companies with reliable Asian partners outside of China.

The framework would not include the binding market access commitments typical of most trade deals, which have proven difficult for many Democrats to sell after the United States withdrew from the Trans-Pacific Partnership, the signature of President Barack Obama’s trade deal.

US officials say their goals for the framework will be ambitious and will include raising labor and environmental standards and creating new guidelines for how data flows between countries will be. But some analysts have questioned whether the framework can encourage those changes without providing Asian countries with the US market access, which is typically the stimulus in trade pacts. And US labor groups are already wary that some commitments could lead to further outsourcing for US industries.

Nor does the framework try to directly shape trade with China. Many officials in the Biden administration have concluded that talks with China have proved largely fruitless, as have negotiations at the World Trade Organization. Instead, they have said they would try to confront China by changing the environment around it by building alliances and investing more in the United States, including through a $1 trillion bill in infrastructure spending.

Senior US officials share the same view as their counterparts in the Trump administration that the world’s reliance on the Chinese economy has given Beijing enormous strategic leverage. A secret China strategy largely finalized last fall argues that it is important for US security to disconnect some industries and diversify supply chains, say people familiar with the strategy.

The government had to glimpse the secret strategy in a major speech outlining the economic and security goals for China, which Washington officials and China experts expected last fall. The White House first considered having Mr. Biden deliver the speech, but decided on Secretary of State Antony J. Blinken.

Yet the speech – which revolves around the slogan “Invest, Align and Compete,” according to those familiar with it – has been delayed for several reasons, including the war in Ukraine and Mr Blinken contracting Covid this month. Some China experts in Washington have interpreted the delays as a sign of uncertainty over China policy, but US officials insist this is not true.

Mr Blinken is expected to deliver the speech in China shortly after he and Mr Biden return from Japan, people familiar with the schedule say.

The speech does not explicitly address how the administration will deal with Trump’s tariffs, they say. Companies have long complained that they are hurting American companies and their consumers rather than China. Those concerns have become urgent as prices rise at the fastest pace in 40 years, creating a political problem for the White House, which has struggled to explain how to alleviate rising costs except by relying on the Federal Reserve. .

But Republicans and Democrats who want more aggressive policies toward China — and some US companies that do business there — would try to draw blood if Biden cuts tariffs.

“We need to rebuild American industry, not reward companies that keep their supply chains in China,” Florida Republican Senator Marco Rubio said this month after voting against a bill that would allow tariff exemptions.

At a news conference in Japan on Monday, Mr Biden said he would meet with Ms Yellen when he returned from his trip to discuss her call to lift some of China’s tariffs.

“I’m considering it,” the president said. “We have not imposed any of those rates; they were imposed by the previous government, and they are being considered.”

Public breaches among Biden officials are rare, but when it comes to tariffs, the debate has come out into the open.

“There are definitely different positions in government, and they are emerging,” said Wendy Cutler, vice president of the Asia Society Policy Institute and former US trade negotiator. “There are those who think that tariffs didn’t work and are contributing to inflation. Then you have the side of the trade negotiator who says, ‘Why should we give them up now? They are a good lever.’”

The debate over how and when to adjust these rates reflects a wider debate about whether globalized trade has done more to help or harm Americans, and how the Democratic Party should approach trade.

Katherine Tai, United States Trade Representative; Tom Vilsack, the agricultural secretary; Sullivan and others have argued against dropping the rates. Ms Yellen, Commerce Secretary Gina Raimondo and other officials have pointed to the benefits for businesses and consumers of customizing it, said people familiar with the discussions.

Ms Yellen has long been skeptical of tariffs and has become more frustrated with the pace of trade developments, according to those familiar with her mindset. She last week argued for the removal of some of the tariffs as a way to offset rising prices.

“There could be some relief from scrapping some of them,” said Ms Yellen, explaining the tariffs were hurting consumers and businesses. “There are differing opinions, and we’re not really settled or agreed on where to be on rates yet.”

Daleep Singh, a deputy national security adviser, was more blunt in an April 21 webinar. “We inherited these rates,” he said, “and while they may have created a bargaining chip, they serve no strategic purpose.”

For products that don’t strengthen critical supply chains or support national security, “there isn’t much reason to introduce those tariffs,” Mr Singh said. “Why do we have rates on bicycles or clothing or underwear?”

But workers’ leaders, progressive democrats and some industry representatives have advanced several arguments in favor of maintaining strict tariffs, with several pointing to data showing that imports from China are not the main drivers of inflation.

“It’s not something really politically wise for a Democratic president in any form,” said Scott N. Paul, president of the Alliance for American Manufacturing, which represents steel companies and workers.

Economists also believe the impact of cutting rates will be modest. Jason Furman, an economist at Harvard University and former chairman of Obama’s Council of Economic Advisers, estimates that cutting all Chinese tariffs would save half a percentage point from the consumer price index, which grew 8.3 percent in April.

Still, Mr. Furman said that when it comes to cutting inflation, “tariff cuts are the biggest tool the administration has.”

The United States Trade Representative’s office began a legal review of the tariffs this month and says its approach to analyzing them is on track. “We need to make sure that everything we do now is effective first, and second, it doesn’t undermine the medium-term design and strategy that we know we should be pursuing,” said Ms Tai. an interview on May 2.

Some officials of the Biden administration appear to favor an outcome that would lift certain tariffs while raising other trade sanctions on China, a process that would take at least several months. This could be done through a separate investigation under the so-called Section 301 process into China’s use of industrial subsidies.

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