by Paul Antinopoulis, published on InfoBrics, November 17, 2021
The US business community called on President Joe Biden to cancel tariffs on goods imported from China, especially since tariff sanctions only accelerate inflation in the US. Dozens of professional associations, including the Semiconductor Industry Association, Farmers Federation, Chamber of Commerce, and about 20 other organizations signed a letter on behalf of the US-China Business Council. In the joint letter sent on the eve of Monday’s online China-US summit, the American business community called for one of their most pressing problems to be resolved – tariffs against China.
As the Donald Trump administration prepared to impose tariffs on goods imported from China under the guise of Section 301 of the US Trade Act, experts warned that punitive tariffs would harm American businesses. At the time, Washington explained that the measures were necessary to force Beijing to follow rules that would please the US in the global market, as well as to handle trade imbalances between the two countries. However, the cause of the trade imbalance is not China’s supposed dishonest competition, but the role of the US and the dollar in the global economy.
Despite Trump’s insistence, it was well warned that tariffs would damage the US just as much as China. In fact, China has expanded its trade relations with other countries and regions. In addition, Beijing has actively integrated into international trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), which was signed only on Monday and will form the largest free trade area in Asia.
Meanwhile, the US trade deficit with China remains unresolved. In 2017, just before the outbreak of the trade war, the US trade deficit with China was $375 billion. In 2020, the US trade deficit with China was $310 billion. This is mostly due to Chinese exports falling because of the COVID-19 pandemic.
At the end of his presidency, Trump signed a Phase I trade deal with China. Beijing pledged to increase imports of American goods by $200 billion compared to 2017 levels. Despite this deal, Washington kept most of the tariffs imposed on Chinese goods. Although Biden has rescinded many Trump-era executive orders, he still has not made strong political moves to ease tensions with China. As a result, the trade war has turned into a “new normal” and it is evident that the US will maintain the tariffs in the long run.
After years of this “new normal”, tariffs have not reduced the volume of Chinese exports to the US. In 2020, export turnover from China to the US amounted to $452.5 billion – even more than in the “pre-tariff” period. None-the-less, American consumers are paying more for those goods. The situation is exacerbated because up to 50% of China’s total exports to the US are semi-finished items used when manufacturing finished products. According to the US-China Business Council, US importers paid more than $110 billion in tariffs, of which $40 billion was accounted for since Biden entered the White House.
The situation has devolved in such a way that US Treasury Secretary Janet Yellen admitted that tariff sanctions weaken the US economy. Tariffs on Chinese products naturally raise domestic prices, she said, which negatively affects an already difficult situation with inflation. The US consumer price index (CPI) in October 2021 increased by 6.2% over the same period last year. This is the highest year-on-year increase in the past 30 years.
Prices of some consumer goods, foodstuffs and necessities for daily life increased even further. For example, in the 12-month period ending in October 2021, the price of bacon increased by 20%, eggs by almost 12%, washing machines by 15%, and gasoline by 50%. Although measures have been taken by the US government to help people overcome the crisis caused by the COVID-19 pandemic, inflation has continued to grow. As a result, the median American household income has fallen by 1.2% from October 2020 levels.
Some other issues include the Federal Reserve’s ultra-low interest rate policy – a policy of injecting money directly into the economy. Almost a quarter of the total value of the dollar in circulation has been issued in the wake of the COVID-19 pandemic. In this situation, tariffs on Chinese products affects the US economy even more.
Washington understands the need to gradually establish dialogue with Beijing. Obviously, in the relationship between the two countries there are many deep and fundamental contradictions that cannot be resolved with an online summit. In fact, given the comments made by Washington and Beijing on the eve of the summit, it was never expected that the meeting would yield any major breakthroughs or historic decisions.
Although White House Press Secretary Jen Psaki said that the two leaders would discuss ways to responsibly manage competition, as well as ways to work together when their interests align, for now the two sides cannot find a solution to make concessions to each other. None-the-less, the fact that officials in the Treasury Department and the US Trade Mission started talking about the impact of tariffs on American consumers is a huge event in itself.
Paul Antonopoulos is a Research Fellow at the Center for Syncretic Studies. He has an MA in International Relations and is interested in Great Power Rivalry as well as the International Relations and Political Economy of the Middle East and Latin America.