What Biden’s tariffs on Chinese imports mean for American jobs, the economy and inflation

What Biden’s tariffs on Chinese imports mean for American jobs, the economy and inflation

Countries have long imposed tariffs as a way to protect and support domestic industries.

However, history and research have shown that economic impact often fails to live up to the hype.

On Tuesday, the Biden administration announced the latest iteration of American import taxes: a new wave of tariffs and increased tariffs on Chinese exports across a range of industries considered strategic to national security.

Economists expect that the newly announced $18 billion tariffs are likely to have minimal short-term impact on GDP, inflation and monetary policy – some likening it to a mere “rounding error”. However, on a broader level, the picture may be more complex.

“The tariffs announced on China by the Biden administration foreshadow what will be a long and cold winter of economic conflict between the US and China,” economist Joe Brusuelas at RSM US told CNN.

The latest tariffs build on former President Donald Trump’s $300 billion program in 2018 and 2019, which imposed steep tariffs on China and various other trading partners and remains in effect.

Trump has made a campaign trail promise of higher tariffs if he is elected – not just for China but a blanket 10% tariff on all imports, which economists say will not only result in significant US job losses but also fuel inflation.

Economic growth, inflation and the Fed
The latest tariffs, which will be rolled out some time between now and 2026, come amid a strong job market, robust economic growth and solid consumer spending — but also an ongoing struggle against decades of high inflation that has kept interest rates higher.

Biden’s tariff plan probably won’t move monetary policy, said Ryan Sweet, chief US economist at Oxford Economics.

“Additional tariffs are essentially rounding errors for inflation and GDP, carrying no implications for monetary policy,” Sweet wrote in a note issued Monday, when reports first indicated that changes to US tariff policy were coming. “The Fed won’t make a mountain out of a molehill, so tariffs won’t provide additional ammunition to justify keeping interest rates high for much longer.”

On Tuesday, after learning the full scope of the Biden administration’s tariffs, Sweet told CNN those expectations shouldn’t change significantly.

Domestic manufacturing
In 2002, when President George W. Bush placed tariffs on imported steel and aluminum products, studies showed that although it only cost the economy $30 million, it resulted in higher prices for industries that use American steel and caused significant job losses. noticeable around the world. steel industry, especially among small firms that do not have market power to influence prices.

Seven years later, when President Barack Obama raised tariffs on tires imported from China, the initiative was credited with saving about 1,200 jobs in the US tire manufacturing industry, but came at a cost to Americans of $1.1 billion in higher prices, Peterson. Institute of International Economics found.

The 2018 tariffs imposed by Trump did not cause an immediate boost to manufacturing jobs but instead led to net job losses and higher prices for consumers due to higher input costs and retaliatory tariffs, Federal Reserve economists said in a 2019 paper.

Cost to the consumer
Tariffs usually mean more politics than economics, Sweet said.

“Most economists see tariffs as a bad idea because they prevent countries from reaping the benefits of specialization, disrupt the movement of goods and services, and lead to a misallocation of resources,” Sweet wrote. “Consumers and producers often pay higher prices when tariffs are implemented.”

That’s because tariffs tax imports when they arrive on land, adding costs to distributors, US retailers and, ultimately, consumers.

The US International Trade Commission said in a 2023 study that US importers “bear almost the full cost” of Trump’s tariffs.

Worse, some businesses appear to be taking advantage of the trade war by raising prices even higher.

Goldman Sachs found that the tariffs allowed US producers and non-Chinese exporters to the US market to “raise their prices also opportunistically.”

The New York Fed found that the 2018 tariffs cost US households $419 a year due to higher tax burdens and efficiency losses market. Researchers estimate it will double when the tariffs take effect in 2019.

As more time has passed, the positive economic effects have become less and less apparent.

The net economic impact of import tariffs, retaliatory tariffs and agricultural subsidies “is at best wasteful, and it may be slightly negative,” on US jobs and businesses, economists wrote in a National Bureau of Economic Research paper published in January 2024.

Trade wars seem to have political benefits in strengthened support for the Republican party in the US heartland and the communities most affected by the tariffs, researchers said in the NBER paper.

“Residents of tariff-protected locations become less likely to identify as Democrats and more likely to vote for President Trump,” they wrote. “Therefore, voters seem to have given a favorable response to the extension of tariff protection to local industries despite the economic cost.”

Import flow
The disintegrating impact of the Covid-19 pandemic on supply chains distorts the full picture of how the 2018-2019 tariffs affect US manufacturing and trade.

US importers have begun to replace Chinese goods, but as the pandemic hits and US consumer demand rises, domestic inventory levels shrink quickly and Chinese imports rise again, Wells Fargo economists wrote in an April note.

However, by the end of 2023, imports from China were down 3% compared to 2019 while there was 50% growth in imports from South Korea, Singapore, Taiwan and Vietnam, Nicole Cervi, an economist at Wells Fargo, told CNN in an interview.

“Certainly there is some data that shows that we have seen stronger imports from countries outside of China, and part of that may be that Chinese businesses may be moving some of their operations to other countries that are not affected by the Section 301 tariffs. ,” said Cervi.

The latest sea and air freight data raises further suspicions that China may be trying to circumvent US tariffs through Mexico, said Peter Sand, chief analyst with Xeneta, a sea and air freight analysis and logistics company.

Container shipping imports from China to Mexico jumped 60% higher in January and 34% for the first quarter, Xeneta data showed.

“That’s a lot,” Sand told CNN in an interview. “It was shocking.”

What was once an immature trade lane is now one of the busiest in the world, he said.

“It is clear that imports so far are not only for domestic purposes in Mexico,” he said.

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