The Biden administration is wrestling with how to manage the legacy of President Trump’s China tariffs without appearing “soft” on China in the upcoming congressional midterm elections. Here’s a recipe for addressing concerns of most stakeholders and surviving a tough election season ahead.
First, Trump imposed tariffs on $370 billion of Chinese imports. Biden should announce that he will retain and renew tariffs on all those goods pursuant to Section 301 of the Trade Act of 1974. Maintaining Trump’s tariff structure would help Biden rebut midterm campaign claims of “softness” on China.
Second, Biden should adjust the applicable Section 301 tariff percentages – as Trump did during the trade war – which currently range between 7.5 percent and 25 percent. Adjustments upward should target Chinese industrial policy abuses identified during the Section 301 investigation and retaliate for China’s failure to meet its Phase 1 trade deal obligations. Adjustments downward may help reduce U.S. price inflation and should be aimed at reducing tariffs on products that benefit less from Chinese industrial policies.
Tariff increases get “tough” on China and appeal to trade hawks while decreases will introduce a worker-centric approach addressing consumer and business community complaints about the destructive impact of the Trump tariffs.
The overall drag that the Trump tariffs impose on the U.S. economy will decrease if more tariffs are adjusted downward than upward. Consumer products and other goods not benefitting from Chinese industrial policies might theoretically remain in place but drop to as low as 1 percent. But tariffs for products benefiting from the Chinese government subsidies, intellectual property rights (IPR) theft, forced technology transfer and other industrial policies, such as the Made in China 2025 plan, should increase significantly.
Third, Biden must put an end to endless internal strategizing and announce a China trade policy that highlights the positive aspects identified above. After more than a year in office, even Biden’s supporters are not sure where he stands on China trade. The administration desperately needs to fill this policy void with a platform that Democrats can advocate and defend. Pending congressional legislation could change the playing field in some respects, of course, but prospects for passage are uncertain, and the midterms are just months away.
The new China policy should, in the interest of prioritizing immediate action, resolve various discrete trade issues that have been debated at length. For example, the Biden administration should declare that Trump’s Section 301 case provides legal authority to take actions described above and debate over a possible new Section 301 investigation should stop.
Similarly, tariff exclusion debates should end because tariff percentage reductions can achieve the same purpose with immediate effect. Legal challenges to Biden’s policies are inevitable, but the experience of the Trump years suggests that cases will take years to decide and are thus irrelevant for purposes of the 2022 midterms — and perhaps even the next presidential election.
Biden faces a choice between defining a carefully crafted China trade policy and letting the Republicans’ “soft on China” charge define him. He and his party must take the initiative by boldly accommodating as many stakeholders as possible and winning by capturing the support of middle-of-the-roaders. It will not be easy to punish Chinese economic aggression, reduce the burden of the Trump tariffs on the U.S. economy and re-take the initiative in the U.S. political arena on China trade issues. But it can be done.
Jeff Moon is a China trade and government relations consultant who served previously as assistant U.S. trade representative for China affairs.