End Trump’s Trade War? Easy Inflation Win Could Backfire on Biden

(Bloomberg Businessweek) -- Despite his criticism of Donald Trump’s foreign policy, President Joe Biden has held fast to many aspects of it, from sanctions on Iran to the embargo on Cuba. Yet as inflation surges and threatens to undermine the U.S. economic recovery, the president is in a bind when it comes to Trump-era tariffs on China.

Economists say undoing those tariffs would lower prices, offering immediate relief to American consumers. Yet removing the tariffs without getting much in return from Beijing would allow Republicans to castigate Biden as soft on America’s biggest competitor—an accusation Trump repeatedly lobbed at his rival during the 2020 presidential race. The political case for China hawkishness is clear: Polls show a sharp rise in recent years in the share of Americans who view China negatively. Plus, there’s now a bipartisan consensus in Washington that previous diplomatic approaches to change China’s economic behavior haven’t worked and a case for using the tariffs as leverage in new trade talks.

That’s one reason why, during Biden’s virtual summit with Chinese President Xi Jinping on Nov. 15—the first major exchange between the two leaders since Biden took office—there were few real tangibles or concessions even as the two leaders sought to set a floor in their relationship. And while both could probably use the economic boost from eased tariffs, neither is ready to take that step just yet.

“He can’t do anything on the tariffs without being able to show his domestic audience that he’s getting meaningful improvements in China’s trade policy,” says Robert Hormats, managing director for Tiedemann Advisors, who held senior economic and trade policy roles under five U.S. presidents.

As inflation—driven by factors including pent-up demand and disrupted supply chains—cuts into the American consumer’s buying power, authoritative voices both inside and outside of government have said unwinding the trade war could help. Treasury Secretary Janet Yellen said in a recent interview that lowering tariffs would have a “disinflationary” effect.

In a letter to Biden officials sent ahead of the summit, multiple business groups, including the US-China Business Council and the U.S. Chamber of Commerce, warned that tariffs on China are hurting U.S. companies and families. “These costs, compounded by other inflationary pressures, impose a significant burden on American businesses, farmers, and families trying to recover from the effects of the pandemic,” the groups wrote.

As the virtual summit underscored, the administration does want to de-escalate. Trade Representative Katherine Tai said on Nov. 10 the U.S. was getting “traction” with the Chinese on compliance with the Phase One trade deal. Such comments remove the prospect of additional escalation “and create space for an eventual announcement for both sides to remove a portion of the tit-for-tat tariffs” set under Trump, says Ian Bremmer, president of the Eurasia Group, a political risk consulting firm. Inflation was the impulse for the recent trade truce on steel and aluminum between the U.S. and Europe, he says.

To Hormats, a more effective China policy than tariffs would be passage of the $250 billion U.S. Innovation and Competition Act, which moved through the Senate with bipartisan support in June but has languished in the House, to make the U.S. more competitive in key technological industries.

But for now, Biden may be stuck with a Trump administration policy he frequently slammed during his campaign for the White House. “President Trump may think he’s being tough on China,” Biden said during a foreign policy speech in 2019, yet “all that he’s delivered as a consequence of that is American farmers, manufacturers, and consumers losing and paying more.”

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