Inflation finally kills shaky U.S. trade-war logic

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U.S. President Joe Biden delivers remarks after the the U.S. Supreme Court ruled in the Dobbs v Women's Health Organization abortion case, overturning the landmark Roe v Wade abortion decision, at the White House in Washington, U.S., June 24, 2022. REUTERS/Elizabeth Frantz

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WASHINGTON, July 5 (Reuters Breakingviews) - Maybe something good will come from inflation after all. President Joe Biden is close to axing at least some of the tariffs his predecessor levied on about $350 billion of goods the United States imports from China. His administration reckons they hurt consumers. A better reason would be that they failed to change China’s ways in the first place.

Biden didn’t design the tariffs – that was Donald Trump, who sought to punish unfair practices like Chinese intellectual property abuses – but he has made a mistake by leaving them in place this long. China originally agreed to buy an additional $200 billion in U.S. goods over two years and make substantive policy changes. That didn’t happen. China bought none of those extra American imports, according to the Peterson Institute.

Inflation at a 40-year-high has caused a rethink. The American Action Forum reckons the tariffs on items like toys, paint and soap, cost consumers about $50 billion a year. That’s why some on Biden’s team, including the president, are leaning toward scrapping some of them as early as this week, the Wall Street Journal reported. Peterson estimates the competitive impact of getting rid of all the levies could lead to a 1 percentage point drop in the consumer price index, which rose 8.6% year-over-year in May.

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Unforeseen events had already made the tariffs less relevant. Because of the pandemic and rising consumer spending, the U.S. trade deficit with the People’s Republic rose 15% from 2020 to 2021, and has increased again so far this year. Yet trade levies still have political value, since China is one of few bipartisan targets in Washington. The Biden administration is weighing increasing other import taxes on industrial machinery, and high-tech items could follow, the Wall Street Journal reported.

Biden does risk being seen as soft on China, especially by the labor unions he courted in order to become president. And state subsidies and other unfair trade practices are a problem in the People’s Republic. But the tariff whacks aren’t hitting their mark. Inflation merely deals the death blow to an idea that had little life in it anyway.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

U.S. Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He discussed tariffs on Chinese imports during a videoconference on July 5, according to China's commerce ministry. President Joe Biden’s administration is considering removing at least some of the levies imposed by his predecessor, Donald Trump, on about $350 billion in Chinese goods.

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Editing by John Foley and Sharon Lam

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