In other words, even the complete abolition of the Trump tariffs – which the administration is not contemplating – would have only a marginal impact on the current US inflation rate.
Joe Biden is reported to be considering a very modest cut, covering only about $US10 billion of the tariffs.
There is a lot more scope than that. As the trade war escalated the Trump administration piled on tariffs indiscriminately, with the later tranches having no strategic significance at all. Clothing, footwear, bicycles, nappies and other consumer goods had tariffs slapped on them before a truce was agreed with China in early 2020.
The leverage the tariffs were supposed to give the US in enforcing the terms of that truce – China agreed to buy $US200 billion more US products in 2020 and 2021 than it had in 2017 – failed dismally, with China’s purchases falling a long way short of its commitments.
Trump’s crude trade war on China failed to change China’s policies or behaviours.Credit:AP
The trade war also failed in what was supposed to be Trump’s primary objective, reducing the trade deficit the US has with China. Instead that deficit has blown out to record levels.
The Trump’s trade strategy towards China was crude. It tried to bludgeon and coerce China into making economic concessions and changes to its economic strategies while encouraging American companies to manufacture more within the US.
The strategy failed to change China’s policies or behaviours and, to the extent that it impacted China’s exports, it diverted the manufacturing of those goods to third countries. Vietnam and other South-East Asian economies benefitted, as did Mexico and Canada.
The Biden administration, while conceding the ineffectiveness of the tariffs, has been reluctant to give up their perceived leverage. It has, however, been awarding large numbers of exclusions and exemptions from them to US importers.
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It’s also very aware of the politics of being seen to be soft on China. With the mid-term elections looming and parts of its own base, particularly the labour unions, hostile to any changes there aren’t going to be any dramatic changes to its policies towards China at this point.
The administration has, however, already started to quietly reshape its trade policies. It has lifted some of the tariffs that Trump imposed on America’s traditional allies, which has greatly improved America’s relationships with them.\
It has also been using a raft of far more targeted sanctions on Chinese companies and individuals for engaging in activity that threatens US national security or foreign policy interests or for involvement in alleged human rights abuses.
It has also been putting pressure on its Western allies to stop selling key technologies to China, like advanced semiconductor chips and the technology tools to produce them, provoking calls of “technological terrorism” from the Chinese.
The unanimity of the US-led coalition of nations that is enforcing the sanctions in Russia, despite the considerable cost to some of them, is seen as blueprint for how China might be contained.
Behind the scenes the Biden White House is looking at a longer term, more structural and more strategic shift in the trade policies, rationalising the current raft of tariffs and sanctions and even increasing the tariff rates on some of the more sensitive products.
It is also looking at both the tariffs and export controls – export controls in particular – and at seeking the aid of its allies to target more narrowly sectors of China’s economy and companies that are seen as important to China’s ambition of gaining technological and military advantages over the US and its allies.
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The unanimity of the US-led coalition of nations that is enforcing the sanctions in Russia, despite the considerable cost to some of them, is seen as a blueprint for how China might be contained.
For nearly a year the administration has also been considering action against those Chinese companies that are state-subsidised and therefore compete with Western companies on an unlevel playing field (and which generally tend to be central to China’s military and technological ambitions).
The Europeans are thinking along the same lines, having issued draft rules for the treatment of state-subsidised foreign companies last year.
Biden’s success in repairing much of the damage Trump did to America’s traditionally close relationships with the Europeans, Canada, Japan, South Korea and others and the more sophisticated and mature approach the administration has brought to bear on the longer-term approach to responding to a more aggressive and ambitious China are a far more potent threat to China than Trump’s clumsy and self-harming tariffs.
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