China Tariffs: Will Inertia Win?

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Former President Trump’s China tariffs came with a safeguard: They expire after four years unless an internal review finds them worth keeping. On trade issues, President Biden has so far been almost indistinguishable from Trump. This tariff review is his chance to change course for the better. He probably won’t seize the opportunity.

The tariffs affect about $370 billion of goods. Whispers around Washington hint that Biden might lift tariffs on about $10 billion worth of those goods, or less than 3 percent of the total. That would leave more than 97 percent of the China tariffs intact. If that happens, they won’t just be Trump’s tariffs anymore. Biden will own them, too.

Tariff advocates have a point. The Chinese government—as distinct from Chinese individuals—is often a bad actor on trade. Beijing insists on a level of state ownership, or at least state control, of many foreign businesses’ China operations. The regime has a habit of nationalizing private property and stealing technology and other intellectual property. Its human rights abuses make their way into some Chinese exports, as do national security concerns.

The tariffs were intended to lessen those abuses. Instead, the first round of China tariffs sparked retaliatory tariffs. Beijing made no reforms, so Trump enacted a second round of tariffs—with the same results. On it went through four rounds of tit-for-tat tariffs and retaliations without reforms, just as any game theory textbook would predict.

The pivot from tariffs to the Phase One agreement was unworkable from the start. Trump’s reelection campaign was a major motive behind many of his requests, which put American negotiators in a position of weakness. Beijing’s negotiating team took advantage, and made many provisions either inconsequential or unenforceable. Phase One’s largest item, guaranteed agricultural purchases, were made unworkable by the COVID-19 pandemic.

The takeaway from four years of failures on China trade policy is that it’s time for a new approach. Tariffs don’t work, and Phase One isn’t worth the paper it’s written on.

The Biden administration should use its tariff review to eliminate the China tariffs entirely. Not only do they fail in their diplomatic goals, they hurt the U.S. economy. They raise prices of goods such as food, clothing, toys, and electronics on purpose, while inflation is at a 40-year high. They harm consumers and raise costs for producers. Repealing tariffs is free economic stimulus that doesn’t require another trillion-dollar spending bill.

One of the few advantages of Trump’s unilateral approach to tariff-making is that Biden does not need to herd congressional cats to get rid of them. He can do so himself. He doesn’t even need to wait for the four-year review to finish. He can act now.

If Congress cares to act, it can repeal the decades-old provisions that delegated tariff-making authority to the president in the first place. Trump’s and Biden’s trade mistakes must not be repeated.

For more on that idea, see my paper. For the larger case for free trade and against tariffs, see Iain Murray’s and my paper “Traders of the Lost Ark.”