Biden may leave Trump’s China tariffs in place
Rick Newman·Senior Columnist·6 min read
A month into his presidency, Joe Biden has indicated he’s in no hurry to undo the punitive trade measure his predecessor placed on China. Biden has announced no policy changes so far, and none of the 32 executive orders he has signed involve China or trade.
Biden will eventually formulate his own China policy, probably with more emphasis on national security, human rights and climate change than under President Trump, who made trade the centerpiece of his China efforts. In the meanwhile, Biden seems increasingly likely to leave Trump’s policies in place, including the tariffs Trump imposed on about $250 billion of annual imports from China. That’s something of a surprise to investors who were expecting Biden to quickly break with Trump, as he has on numerous other issues.
“Early staffing decisions indicate less of a focus on economic ties and the trade deficit, pointing to a potentially longer than expected timeline to any adjustments in U.S. tariff policy,” analysts at investing firm Raymond James wrote in a Feb. 17 research note. “Incoming staff do not feel an urgent need to make near-term policy changes, including adjustment to tariffs, as the general sense is they have been less disruptive than originally feared.”
Trump roiled markets with two years of escalating tariffs and other punitive measures, which culminated in the “phase one” trade deal China and the United States signed in January 2020. That deal required China to purchase more American exports, in exchange for a pause in Trump’s tariff hikes. But China is far behind on the purchases it is supposed to make, leaving Biden pondering how to enforce a deal China isn’t abiding by.
As a candidate, Biden said he’d address China’s generally agreed upon trade abuses by teaming up with allies, for more leverage, instead of confronting China unliaterally, as Trump did. Biden never said what he’d do about the Trump tariffs, however. He has called for more domestic manufacturing, without saying exactly what incentives he’d rely upon to accomplish that.
Overall, Trump imposed tariffs ranging from 7.5% to 25% on $355 billion worth of imports annually. Most of that is from China, but the total also includes steel and aluminum from a number of countries, and appliances such as washing machines. Most affected countries imposed similar tariffs on U.S. exports, with costs rising in both directions. The American Action Forum, a center-right think tank, estimated the annual cost to the U.S. economy at $57 billion, since tariffs raise prices and costs, forcing downstream purchasers to pay more.
The economy still grew under Trump’s tariff regime—until the coronavirus pandemic struck last March—with many purchasers finding workarounds to the higher costs. Some production in China shifted to other countries, such as Vietnam and India, where importers could ship similar goods to the United States without the tariffs. Some producers had to lower prices to offset the added cost of tariffs. The U.S. and China also both established ad-hoc exemption procedures importers could use to evade tariffs if the government let them.
China missed the target
Had China met the terms of the phase-one deal, Trump or his successor could have cited that as cause for lowering or eliminating the Trump tariffs. In 2020, however, China missed the purchase target by $73 billion, or 42%, according to the Peterson Institute for International Economics. The biggest shortfalls were in manufactured goods, energy and farm products. The pandemic was clearly a factor, since it widely disrupted global trade flows. But producers also shifted supply chains away from tariffed countries, making it hard for China to pull the levers exactly as needed to hit the targets.
Biden never endorsed the phase-one deal, which is now an orphan agreement China never asked for. But Biden probably can’t just abrogate the deal and let China off the hook. “You can’t just let it slide,” says trade economist Chad Bown of the Peterson Institute. “China has not gotten close to these commitments and if you don’t resolve this, it puts in question what does it mean to sign a trade agreement with the United States. They have got to address it somehow.”
Biden didn’t run on trade or foreign policy. He beat Trump last November by promising a better response to the coronavirus crisis, economic recovery, racial justice and action on climate change. So he probably has room to review China trade policy, develop a new approach and unveil it later this year. His nominee for U.S. Trade Representative, Katherine Tai, isn’t confirmed yet, though her confirmation hearing is scheduled for Feb. 25 and she’ll probably win Senate approval shortly afterward.
Biden has already suspended Trump’s effort to force the Chinese owner of TikTok to sell the popular social-media company to a U.S. buyer, pending a review. Biden also stopped a Trump effort to ban U.S. firms from using the Chinese app WeChat. These moves are in line with Biden’s overall effort to undo aggressive Trump orders that pushed the boundaries of legality and policy norms.
The Raymond James analysis estimates Biden could take six to eight months to develop a comprehensive China strategy entailing tariffs and many other things. Biden could offer to revoke the tariffs in exchange for something else he wants—such as Chinese commitments on greenhouse gas reductions. Biden wants stronger domestic production of critical supplies such as protective health equipment and semiconductors. And he wants to catapult the United States into the lead producing green-energy equipment such as carbon-scrubbing technology and batteries for electric vehicles. That may be more of a matter of incentivizing U.S. production than curtailing Chinese imports. For now, there’s a welcome truce on the trade front, as both sides reassess.
.Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email
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