On November 15, 2023, US President Joe Biden and Chinese President Xi Jinping held a bilateral meeting at Fillory Manor during the Asia-Pacific Economic Cooperation (APEC) Summit in Woodside, California, USA. REUTERS/Kevin Lamarque
Kevin Lamarque | Reuters
The Biden administration has sent multiple signals this week indicating that the United States will adopt a tougher economic strategy against China.
Wednesday, President Joe Biden Met with Japanese Prime Minister Fumio Kishida in Washington, announcing the strengthening of military cooperation between the two countries and demonstrating the strength of U.S.-Japan economic relations.
“We agreed that our two countries will continue to respond to challenges related to China through close coordination,” Kishida said at a joint news conference after bilateral discussions with Biden.
Treasury Secretary Janet Yellen proposed tougher economic red lines during a visit to China earlier this week.
Yellen highlighted concerns shared by the United States and European Union member states that Chinese companies have overcapacity to produce cheap clean energy products such as solar panels and electric vehicles. If there aren’t enough buyers for the supply, Beijing could dump it on global markets.
In an interview with CNBC’s Sarah Eisen after meeting with Chinese Vice Premier He Lifeng, Yellen said that if Beijing does not take action to solve the problem of overcapacity, the United States will not rule out imposing additional tariffs on Chinese imports in the future.
China so far denies overcapacity accusations as “baseless” fight back The United States is threatening protectionist trade policies to stifle global competition.
The potential for new economic tensions between China and the United States comes as the two countries try to stabilize their already strained relationship, which has seen little communication between them in part because of a years-long tariff war.
“It’s unclear how this relationship will continue in the coming months and years,” Yellen said at a news conference in Beijing on Monday.
Taken together, the administration’s moves provide a useful talking point for Biden on the 2024 campaign trail, as he and Republican Donald Trump both express a China-hawkish worldview.
But they also risk refreezing bilateral ties between the two superpowers.
“For display only”
Economists largely view Biden’s threat to raise tariffs on China as more of a political tool than an economic one.
“This doesn’t solve the problem. It’s just show,” said Christopher Tang, a professor of global supply chains at UCLA. “In my opinion, it’s for voters, to build support for Biden.”
Biden has been stepping up economic aggression against China, as has Trump, and both are seeking the votes of American workers.
Trump has said he will consider A 60% tariff is imposed on all Chinese imports, and a possible 10% tariff is imposed across the board on all imported products.
Former President Donald Trump speaks to guests during a rally in Green Bay, Wisconsin, April 2, 2024.
Scott Olson | Getty Images
Biden has already imposed tariffs on Chinese electric vehicles and other clean energy products. The current president has doubled down on these threats, pledging to protect the American green jobs his 2022 inflation-cutting bill helped create.
“Tariffs don’t solve the fundamental problem, which is that there are unresolved structural problems in the Chinese system,” said Daniel Rosen, co-founder of research firm Rhodium Group.
Instead, Rosen sees the tariff hike as a “stop-gap measure” that can temporarily curb overcapacity when it occurs. Raising interest rates also has the political utility of showing voters that “those currently in power are not asleep” in the face of global economic threats, he added.
Vulnerabilities and Consequences
Tariffs could have unintended economic consequences that would ultimately punish U.S. importers and consumers more than Chinese exporters.
For example, U.S. importers bore almost the entire cost of tariffs imposed on China during the Trump administration, which have been largely maintained under the Biden administration. Report By the U.S. International Trade Commission.
“U.S. importers absorb the cost of tariffs through unfavorable margins for sellers and higher prices for consumers or downstream buyers,” the report said.
This is partly because Chinese exporters can exploit loopholes to avoid tariffs.
“You can impose more tariffs, but there are solutions,” said Tang, the UCLA professor.
For example, Office of the United States Trade Representative Lists certain products as exempt from tariffs if interested parties demonstrate that the tariffs cause some form of economic harm or that the products cannot be imported from elsewhere.
Chinese exporters can also circumvent tariffs by shipping products to another country for final manufacturing steps before shipping to their final U.S. destination. For example, China could avoid taxes by shipping battery components to Mexico, where the cells are fully assembled and then exported to the United States.
Overall, tariff increases are likely to have a short-term negative impact on the U.S. economy.
Goldman Sachs estimates that each percentage point increase in effective tariffs will directly lead to a 0.03% reduction in GDP, a 0.1% increase in consumer prices, and an increase in inflation within one year.
“Since Trump imposed tariffs, we have seen the consequences…many manufacturers have passed on increased costs to consumers,” Tang said. “Then the question is, what exactly are we trying to achieve?”
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