The former US ambassador says raising Chinese tariffs could reduce inflation

Eliminating tariffs on imported Chinese goods will reduce US inflation by 1% over time and restore confidence in the economy, which could help President Joe Biden in the ballot box, said former US Ambassador David Adelman.

“Inflation will be the number one issue in the US midterm elections in November,” Adelman told CNBC’s Squawk Box on Monday.

“While the president is limited in his ability to control inflation, there is one important tool in his toolbox,” said Adelman, who was the U.S. ambassador to Singapore during the Obama administration.

“This is the ability to ease the pressure on the US economy and US consumers caused by these very high tariffs, which are imposed on more than $ 370 billion a year from Chinese imports.

“Many economists say that over time you could have a full 1% drop in the CPI, something that is very important for American consumers,” he said, referring to the consumer price index, a key indicator of inflation.

While former President Donald Trump’s trade war with China was popular with American voters on both sides of the aisle in 2018, Adelman said the effort was economically futile and did not create “meaningful” trade benefits.

“I think the proof is in the pudding. Not only did it not have a negative impact on the Chinese economy, but it also had an impact on the US economy. It acted as a boomerang on the US economy,” Adelman, who is also managing director of KraneShares, said.

“Biden is beginning to realize as the election unfolds that the economy will be most important to voters. If the president can do anything to ease the pressure, he must do it. Ultimately, a good economy must make good policies, he said.

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The US government is reviewing Trump-era trade tariffs on Chinese goods, a process that was triggered by legal regulations rather than US political will to restart relations.

An increasing number of economists, political observers and analysts have called on the Biden administration to cut tariffs as fears of inflation and recession increase. Former Treasury Secretary Larry Summers reiterated Adelman’s comments earlier Sunday, saying raising tariffs on Chinese imports was the “right to do.”

“It simply came to our notice then [and] to allow us to take a more strategic approach when working with China. Over time, this will take 1% or more of the CPI, reducing tariffs is the right thing to do. “I hope the administration finds a way to do that,” Summers told NBC News.

Finance Minister Janet Yellen said some tariffs on China served “no strategic purpose” and that Biden was considering removing them as a means of cooling inflation.

Not only has China failed to meet US targets for trade, but the Peterson Institute for International Economics says tariffs have raised inflation for both US and US producers.

In the year to November 2021, US tariffs on Chinese goods added 0.26 percentage points to the CPI, said Catherine Russ, a non-resident senior PIIE trade policy officer, in an analysis earlier this year. In the year since the United States imposed tariffs on Chinese goods, producer prices have also risen 1%, says the analysis of Russ.

In March, Chad Bone, a senior PIIE senior policy officer, said China had not bought any of the additional $ 200 billion in U.S. exports it had pledged to buy under the Phase 1 deal.

As for the dent in China’s economy, tariffs have slashed just over 0.5 percent of China’s GDP, Capital Economics chief economist for Asia Mark Williams said in a note last week.

“Some Chinese companies have managed to avoid them by redirecting ships to the United States through third countries, mainly in Southeast Asia. This can compensate as much as half from dragging, “Williams said.

Adelman, a former ambassador, said Biden could eliminate certain tariffs without the difficult task of seeking congressional resolution in two ways.

He could temporarily suspend certain tariffs or sign an executive order to raise tariffs, while protecting individual US industries with which China competes.

The removal of tariffs will not only be good for American consumers in the short term and, over time, will help the president restore US-China relations.

David Adelman

former US ambassador

“Surely American consumers will reward him for that,” Adelman said.

“Not only will the abolition of tariffs be good for American consumers in the short term and over time, it will help the president restore US-China relations.”

“Ultimately, economic engagement between the world’s two largest economies would be good for the world’s largest economy.”

However, Robert Daly, director of the Kissinger Institute at the Wilson Center for China and the United States, was skeptical of both Washington’s efforts to raise tariffs and their contribution to inflation.

He said political pressure to remain firm on China would go beyond Biden’s desire to care for consumers and free them from the burden of higher living costs.

“If he just unilaterally raises these tariffs without getting anything from China, he will get a lot of pressure from Republicans, especially in the Senate, who would call him soft on China,” the Daily said.

Like the Daily, Williams of Capital Economics was also unsure that eliminating tariffs would do much to curb inflation. He said it would reduce the CPI by only “a few tenths of a percent”, not 1 percent, as others had predicted.

“The imposition of tariffs has not led to much inflation,” he told CNBC.

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