Analyst: Biden Administration Unlikely to Roll Back Section 301 Tariffs Permanently
Although President Joe Biden criticized President Donald Trump's China tariffs on the campaign trail, Peterson Institute for International Economics Senior Fellow Chad Bown said he always thought it was unlikely Biden would roll any of them back, because there are "huge political costs" to doing so, because opponents could label you as "weak on China."
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Bown said now that inflation is so high, "you couldn't ask for a better opportunity" to give yourself political cover to eliminate some of the tariffs, if you think they are harmful to the U.S. economy. He said some in the administration believe that to be true, but that other factions in the administration want them for negotiating leverage, or want to reduce trade with China over concerns with forced labor.
The fact that the administration has not seized on the inflation argument to change the tariffs, Bown said, leads him to believe that they won't.
"If they do do something on tariffs it will be relatively small," he said during a Flexport webinar July 28 on the Section 301 tariffs.
"I think there’s still just a lot of uncertainty for how this is going to play out," he said, but said since the Biden administration isn't sending signals that they are going to reverse the policy, more supply chains may move out of China.
The Section 301 tariffs worked to shift some purchases out of China, especially for goods subject to 25% tariffs, panelists said during the webinar, but the phase one agreement that paused the escalation in the trade war was a complete failure in its goal to increase U.S. exports to China, they said. Bown said the volume of Chinese goods subject to 25% tariffs is 80% of what was before the tariffs, but for goods subject to the 7.5% tariffs, the volumes are down a little more than 10%.
In contrast, imports of goods subject to the 25% tariffs are up 140% from other countries, though some of that increase is inflation. Before the trade war, U.S. tariffs on Chinese goods were about 3% on average. Now they are 19.3%. Chinese tariffs on U.S. goods climbed from 8% to 21.2% on average, while they lowered tariffs on imports from other countries to a 6.5% average.
Chris Rogers, Flexport's chief supply chain economist, said that of 2,700 exclusions that were granted to the tariffs at some point, 2,300 were from list one and two, which mostly covered manufacturing inputs in areas that the U.S. Trade Representative considered strategic.
About 24% of the exclusions were renewed, but only 19% were extended again, he said.
"The exclusion process was horribly complicated, and remains horribly complicated," he said.
Rogers noted that tariffs have become less salient in public companies' earnings calls, as it appears they are not changing. "By 2021, it’s all about supply chains being broken and almost nobody was talking about tariffs; tariffs had become, by that point, business as usual," he said.
Rogers said tariffs were not necessarily "the prime mover" for companies retooling their supply chains, as labor costs were climbing in China and Vietnam.