Prof. ST Hsieh
Director, US-China Energy Industry Forum
May 11, 2022
President Biden announced yesterday from the White House that taming domestic inflation is his top priority (from now on.) There are many major factors contributing to US inflation. Biden named two: the global pandemic and the Ukraine war. But, in fact, inflation is truly a global issue, Biden needs to take the leadership on behalf the US and address these issues with actions. For example, Biden can and should mediate a cease fire in Ukraine. Global energy prices spiked after February 24, when Ukraine war broke out. The worst case is, if Ukraine war were not managed properly, global recession would be inevitable. If Germany does not have a secure natural gas supply, its industry machine will stop, so will EU’s economy as well as the global economy.
COVID-19 global pandemic also needs US to take a leadership position. Recently, China has been plagued by nasty lock downs in Beijing and Shanghai. Economic impacts are felt all over the world, it even forces the global crude oil price to drop. Unfortunately, US gasoline prices are not normalizing.
Biden inherited Trump’s tariff against China, there has been no movements in terms of US-China trade negotiations. A major reason is that US, under Biden’s leadership, has taken a hardline approach to China focusing on competition and resort to confrontation as the bottom-line. It is time for Biden to prioritize his agenda and take actions swiftly. US Mid-term election is on November 8, 2022, less than six-month away. Biden administrations have to show result, announcement and grandstanding may get the attention of news media, but they won’t get the votes.
Time for US to lift China tariffs, ‘toxic’ monetary policy biting global economy
By GT staff reportersPublished: May 11, 2022 11:09 PM Updated: May 11, 2022 11:10 PM
US President Joe Biden has finally considered resorting to the option of dropping China tariffs in an effort to quell skyrocketing domestic inflation, an efficient move that could have been adopted much earlier to curb surging US consumer costs.
Though fully aware of that, the reluctance of the Biden administration to make any substantive moves suggests it is weighing whether the benefits to its people are worth undermining political goals, observers pointed out, calling for immediate efforts to scrap China duties and warning aggressive “toxic” rate hikes will threaten the global economy.
Addressing the nation from Washington on Tuesday, Biden said he could drop some of the tariffs imposed against Chinese imports to help control rising consumer prices in the US, noting that the White House is reviewing the penalties and could opt to “remove them altogether.”
“We’re looking at what would have the most positive impact,” Biden said, adding that removing the tariffs was currently under discussion.
Biden’s remarks, which came after similar signals from other US senior officials, show the administration’s anxiety and desperation in the face of worsening inflation woes, Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing, told the Global Times on Wednesday.
Previously, Treasury Secretary Janet Yellen, White House press secretary Jen Psaki and Trade Representative Katherine Tai all indicated that China tariff relief is an option as prices soar.
Latest data showed that the US consumer price index (CPI) hit 8.3 percent in April on a yearly basis, slightly moderate than the 8.5 percent increase recorded in March, but still hovers near four-decade high. The figure is also higher than a previous market expectation of 8.1 percent increase.
The current dilemma faced by the Biden administration is the bitter fruits of its own policy, analysts said, as surging inflation resulting from the high energy prices, previous extremely loose monetary policy and tariffs on Chinese imports has worsened the situation.
“It’s time for the US government to reconsider and lift additional tariffs imposed on Chinese products as soon as possible,” Zhao Lijian, a spokesperson for China’s Foreign Ministry said when asked about Biden’s remarks at a regular press briefing in Beijing on Wednesday.
“The unilaterally imposed tariffs by the US not only harmed China but also the US as well as the world,” he said.
In a recent interview with Forbes, Chinese Ambassador to the US Qin Gang said that the trade war has not reduced the US’ trade deficit so far; on the contrary, the trade war has increased US companies’ and consumers’ costs. The tariffs have cost US corporations more than $1.7 trillion and increased US household spending by $1,300 per year on average.
Additionally, US exports to China in the three years since the start of the trade war – 2018, 2019 and 2020 – were lower than the level in 2017 before the trade war, according to Zhao. During the period, the US lost more than 240,000 jobs due to the trade war.
Dropping tariffs imposed under former president Donald Trump, which caused price rises on everything from clothing, furniture among other daily necessities of US residents, is also believed by economists to be the most apt decision to address the woes.
“A feasible package of liberalization could deliver a one-time reduction in CPI inflation of around 1.3 percentage points, amounting to $797 per US household, about half the size of pandemic relief in 2021,” according to research by the Peterson Institute for International Economics (PIIE) in March.
Moreover, if the US adjusts its tariffs on China, China will also reciprocate and reduce tariffs on US imports, which could be a win-win results for firms and people from both countries, Gao noted.
“Our members have opposed tariffs from the beginning. They are an added cost paid by US businesses and consumers. They contribute to inflationary pressures which have become a major concern for Americans. It’s likely that tariffs in many consumer goods will be lifted first,” Douglas Barry, Vice President of the Communications and Publications at the US-China Business Council, told the Global Times in an e-mail on Wednesday.
Lower prices will stimulate demand. Companies will have more money to invest, Barry said.
“On the other hand, lifting the tariffs would lead to skepticism about the administration’s toughness toward China, and a softer stance may cause Biden to lose some political support at home,” Gao said.
According to a report from the Wall Street Journal, citing people familiar with the matter, Biden officials are divided over easing China tariffs to slow inflation. Trade Representative Katherine Tai and others are reluctant to “relinquish US leverage over China in a continuing effort to reshape Chinese economic behavior,” according to the people.
Last week, the Federal Reserve announced its sharpest rate hike in more than two decades as one of the few options to quell the inflation, but analysts pointed out the rate hikes could be a toxic medicine for the world as well as its own economy.
The Fed’s current policy of accelerating monetary tightening will help relieve the situation in the long run, but will need time to take effect. Besides, rate hikes will not help to ease energy prices or address problems on the supply side, Wei Hongxu, a researcher at ANBOUND, a multinational independent think tank, told the Global Times on Wednesday.
Wei warned that if high inflation continues for a while, the US economic growth rate will decline while the Fed maintains its tightening policy.
Fed officials, now committed to a series of half-percentage-point rate increases, said their aggressive efforts to curb consumer and business demand for goods and services through higher borrowing costs were needed to slow the fastest inflation in 40 years, but they also acknowledged it will be “a painful ride,” according to a Reuters report Wednesday.
The recent volatility in asset markets is “painful,” Cleveland Fed President Loretta Mester told Reuters, but it is also a necessary part of tightening credit conditions in the economy.
Even worse, the spillover risks of a toxic US monetary policy shift have already emerged, as moving from an extremely loose monetary policy to being forced to tighten it to deal with inflation, US monetary policy will cause chaos in international capital flows, which poses great risks to international financial markets and other economies, especially highly indebted countries.
The increase in investment costs has led to a new round of adjustment in the global capital market, including the US, and triggered the return of international capital. This has already happened, Wei said
Furthermore, the appreciation of the US dollar will have an impact on the currencies of other countries, especially emerging markets which will face increased pressure on capital outflows, thereby affecting the monetary, financial and economic stability of these countries. In particular, countries with heavy external debt burdens are constantly experiencing sovereign debt defaults, Wei warned.
China implores US to drop tariffs that punish Americans and Chinese alike
SCMP Wed, May 11, 2022, 2:30 AM
China has urged the Biden administration to remove tariffs on Chinese products, imposed by his predecessor Donald Trump, amid growing discourse in the United States over ways to tame the soaring inflation.
US President Joe Biden said on Tuesday said that he could drop some of the tariffs, while repeatedly blaming the coronavirus pandemic and Russia’s invasion of Ukraine for rising costs.
Ministry of Foreign Affairs spokesman Zhao Lijian said on Wednesday that US exports to China since the trade war started in 2018 have dropped below the pre-war level, and that the US lost more than 240,000 jobs during the period.
“The data indicates that the trade war does nobody any good. It is time for the US government to reconsider and remove the tariffs as soon as possible,” Zhao said.
“There is no winner in a trade war or tariff war. The US’ unilateral tariffs imposed against China do not help us, nor do they benefit the US or the world.”
Last week, US Trade Representative (USTR) Katherine Tai said her agency had started the expiry review of Section 301 tariffs of up to 25 per cent on Chinese products, with the first round to cover US$50 billion worth of Chinese products from July, when the tariffs will expire.
The US released inflation data for April on Wednesday showing an 8.3 per cent increase in the Consumer Price Index. The figure came amid market expectations that inflation would ease from March’s four-decade high of 8.5 per cent. But while inflation may be decelerating, it is running around the fastest rate since the 1980s.
“The US administration wanted to use the tariffs as leverage in bargaining with China, but the tariffs become useless and backfired on the US economy,” said Lu Xiang, a researcher on US issues with the Chinese Academy of Social Sciences.
It will be a top priority for the US to address inflation in the coming months, and the removal of tariffs should be seriously considered to ease the burden on the US economy and its consumers, Lu said.
Beijing extended tariff exemptions on some US products in April for the seventh time, while business associations and some US congressmen have long called for tariff relief.
Plenum, an independent research firm based in Beijing, said the review is the strongest indicator of the USTR’s openness to reducing some tariffs. Tai said the review would be a “robust” consultative process, including collecting a range of industry comments and assessing potential economic impacts.
“The tariff mechanism is likely to stay without any major rollbacks,” said Bo Zhengyuan, a partner with Plenum. “Tai has not once hinted at tariff rollbacks since she entered office, with tariff exclusions always her go-to preference.
“But we still contend that the USTR will keep the Section 301 tariff mechanism, and only adjust the scope by expanding exclusion based on the results of the review and the state of the bilateral relationship.
“Tariff adjustments are no longer tied to trade negotiations between the US and China like during the Trump administration. The USTR’s willingness to adjust the tariff scope stems from economic and political demands at home rather than trade progress with China.”
Experts said Beijing will continue to buy from the US, though there has been no substantial dialogue at the top level on the arrangement of the trade issues after the expiry of the phase-one trade deal at the end of last year.
Qin Gang, China’s ambassador to the US, said in an interview last week that both countries should cooperate in trade as natural partners and take leading roles in driving the global economic recovery.
“For an importing economy like the US, tariffs mean higher prices for US consumers. US inflation is caused by a mixed bag of factors, and tariffs is one of them,” said Iris Pang, chief economist for Greater China at ING.
“The US may consider unwinding the tariffs to the state before the phase-one trade agreement. Dropping part of it may be of little help to ease US inflation.”