Biden’s trade chief walks back comments contradicting Biden on tariffs and inflation

biden’s trade chief walks back comments contradicting biden on tariffs and inflation

U.S. Trade Representative Katherine Tai speaks during a press briefing at the White House in Washington, U.S., May 14, 2024.

US Trade Representative Katherine Tai raised eyebrows this week by dismissing concerns that President Joe Biden’s new tariffs on China would increase prices for US customers like the Trump-era tariffs on China did.

“First of all, I think that that link, in terms of tariffs to prices, has been largely debunked,” Tai told reporters while speaking from the White House podium on Tuesday.

But that claim has been met with skepticism from economists — and even Biden’s own administration. Research shows that former President Donald Trump’s tariffs on China did indeed raise prices on consumers and businesses — despite his claims otherwise.

A person familiar with the matter told CNN on Wednesday that Tai “misspoke” when she said the link between tariffs and prices has been debunked.

Angela Perez, a spokesperson for the USTR, said Tai was trying to make the case that tariffs did not cause the inflation experienced during and after Covid-19.

A 2023 study from the US International Trade Commission found that US importers “bore nearly the full cost” of the tariffs and costs largely did not get passed onto consumers. The study found tariffs imposed by former President Donald Trump did not meaningfully contribute to inflation.

Goldman Sachs told clients recently that the “2018-2019 tariffs clearly raised consumer prices,” adding that these price hikes were “borne almost entirely by US businesses and households” — not Chinese exporters. Worse, Goldman Sachs found that tariffs allowed US producers and non-Chinese exporters to the US market to “opportunistically raise their prices as well.”

Notably, Tai’s boss previously warned that consumers pay for tariffs.

“Trump doesn’t get the basics,” Biden said in a post on X in June 2019. “He thinks tariffs are being paid by China. Any freshman econ student could tell you that the American people are paying his tariffs.”

Tax Foundation economist Alex Durante told CNN he was “mystified” by Tai’s “wildly off-base” comments.

Maury Obstfeld, a former Obama official who is now a senior fellow at the Peterson Institute for International Economics, similarly dismissed Tai’s claim.

“President Biden got it right in his June 2019 tweet. Higher tariffs are a tax that falls for the most part on Americans, not foreigners,” he told CNN. “The new Biden tariffs, like the more extensive ones that Trump has promised, will worsen US inflation. Consumers will suffer, as will firms that rely on imported intermediate components.”

After her “largely debunked” comment, Tai went on to note that the “inflationary dynamics” linked to supply chain challenges were primarily related to Covid and also from Russia’s invasion of Ukraine.

Of course, that point is not really in dispute. Instead, the debate typically focuses on how much corporate greed and federal stimulus contributed to price spikes, not tariffs.

It is fair to debate how much the Biden tariffs will impact inflation because they are not nearly as widespread as what Trump imposed and what Trump is promising if he’s reelected.

During the White House briefing, Tai emphasized that the Biden administration’s strategy is a “targeted strategic response that is meant to work together with the investments that we’re making.”

Perez, the USTR spokesperson, added that these targeted tariffs “won’t increase costs for the American people.”

“By using these tariffs strategically, we’re harnessing the benefits and outweighing the costs,” Perez said.

Biden announced on Tuesday increased tariffs on $18 billion in Chinese imports, focusing on steel, aluminum, legacy semiconductors, electric vehicles, battery components, critical minerals, solar cells, cranes and medical products. The new tariff rates range from 100% on EVs, to 50% for solar components, to 25% for all other sectors.

A senior administration official tells CNN that the White House believes the new tariffs introduced this week won’t raise prices because they apply to product groups that are symbolic, but represent only a small amount of US imports. For instance, the US imported just $368 million in battery-powered vehicles from China in 2023, according to the Atlantic Council, compared to $7.4 billion in EVs from western Europe.

But the Biden administration is also leaving in place Trump’s sweeping tariff program affecting some $300 billion in Chinese imports, which JP Morgan economists in 2019 estimated would cost American households $1,000 each year.

White House officials for years debated whether to remove certain tariffs on consumer products in a bid to ease some of those prices. In April 2022, near the height of inflation, a senior aide raised the question at an event hosted by the Bretton Woods Committee of why some tariffs remained in place that could hurt consumers.

“Why do we have tariffs on bicycles or apparel or underwear?” asked Daleep Singh, deputy national security adviser for international economics. Pressed to elaborate on those comments, then-press secretary Jen Psaki acknowledged that “some of the tariffs implemented by the previous administration were not strategic and instead raised costs on Americans.”

In the end, the senior administration official said, foreign policy considerations outweighed the argument for a slight reduction in consumer prices. Biden concluded it wasn’t the time to back down from the tariff position and lose leverage in challenging Beijing’s unfair trade practices.

Trump enacted sweeping tariffs on $300 billion in Chinese imports, setting off a trade war between the world’s two biggest economies. And Trump has vowed to triple down on that strategy if he’s returned to the White House, promising a 10% across-the-board tariff on imports, a 60% tariff on imports from China and a 100% tariff on foreign cars.

Economists have warned that Trump’s trade agenda would hurt the US economy by worsening inflation, killing jobs, depressing growth and spooking investors.

The focus on Tai’s comments underscores the point that no matter who wins in November, tariffs are not going away. That’s encouraging news to China hawks but troubling to those concerned about protectionism and inflation.

Colorado Gov. Jared Polis, a Democrat, expressed dismay at Biden’s new tariffs on Tuesday.

“This is horrible news for American consumers and a major setback for clean energy,” Polis said on X in response to a Biden post. “Tariffs are a direct, regressive tax on Americans and this tax increase will hit every family.”

Even though lowering tariffs could help ease inflation, Republicans, Democrats and business leaders are focused on addressing China’s trade tactics. And politicians want to be seen as protecting US jobs.

“Any reduction in tariffs would be seen as being soft on China. And the only true bipartisan stance in DC right now is being hard on China,” said Ed Mills, policy strategist at Raymond James.

David Kelly, chief global strategist at JPMorgan Asset Management, warned that not only do tariffs raise prices, they mess with supply chains and invite retaliation. He argued that US officials could help lower inflation by negotiating lower tariff rates with China.

“It’s depressing to see both parties embrace protectionism, which never makes the country richer,” Kelly told CNN. “It’s a curse on both of their houses. Tariffs make people poorer. Both parties are playing this game.”

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