China's military drills in the Taiwan Strait following House Speaker Nancy Pelosi's trip to Taiwan are raising new questions about whether the Biden administration will ease tariffs levied on Chinese-imported goods.
Beijing's war exercises caused the Biden administration to reconsider whether it should ease some of the $370 billion worth of tariffs levied against Chinese imports during the Trump administration, Reuters reported Wednesday.
And Commerce Secretary Gina Raimondo told Bloomberg that Chinese President Xi Jinping's military drills made relations with China "more challenging" and "harder."
"But I am hopeful that we will get beyond that and get back to a place where we can have more of those discussions," Raimondo told Bloomberg.
Here are three factors to monitor as the situation evolves:
1.) Tariff exclusions: The Biden administration could choose to keep the tariffs in place while expanding the list of products that are exempt from the tariffs. That's what many industry analysts are now carefully tracking and homing in on.
While the Trump administration initially granted 2,200 exemptions to China tariffs, most of those exclusions eventually expired. U.S. Trade Representative Katherine Tai announced in March that her office would restore exclusions for 352 products. That same month, the Peterson Institute for International Economics found that easing trade restrictions against China could help cool inflation in the U.S.
Still, the Wall Street Journal reported in May that Tai is reluctant to ease tariffs too much and possibly give up some of the leverage the U.S. might have over China.
2.) Congressional reaction: Lawmakers are split on this issue — and not along party lines. A group of 141 bipartisan lawmakers wrote to Tai in January of 2021, calling on her to expand the exemptions for tariffs.
"We strongly support tough and effective action to address China’s unfair trade practices, we believe that there must be a meaningful opportunity for American companies to petition for relief from tariffs," the lawmakers wrote in the letter. "The current exclusions are insufficient to provide the badly needed relief for businesses and workers struggling with the unprecedented economic hardship caused by the pandemic."
But a second group — including Sens. Rob Portman (R-Ohio) and Elizabeth Warren (D-Mass.) — wrote Tai in May 2022 and urged her to keep the tough tariffs in place.
"The tariffs are not a driver of today’s inflation. Not only do the tariffs predate the current inflation by over three years, but Chinese imports make up only 2% of goods included in the Consumer Price Index (CPI) and would not materially reduce inflation. Indeed, much of the inflation we are seeing relates to fuel and food — sectors that are unrelated to imports from China," the bipartisan group wrote in the letter.
3.) Inflation's impact: While Washington wants to protect U.S. intellectual property through tariffs, policymakers must also factor in the impact the tariffs have on rising costs for Americans during a period of high inflation. Those lobbying against the tariffs are sure to argue that they are in fact one factor spurring inflation — and rising prices have become a hot-button political issue for the president.
Just 29% of Americans approve of Biden's handling of inflation, according to a new ABC News / Ipsos poll released Aug. 7. Meanwhile, 66% of independent voters disapprove of his handling of inflation.
There were some signs of inflation easing in July, according to new CPI data released on Wednesday. Inflation increased at a 8.5% year-over-year rate in July — a decrease from the 9.1% rate from the prior month, according to data compiled by the Bureau of Labor Statistics.
If inflation continues to decelerate, the Biden administration may be less likely to ease China tariffs.
Kevin Cirilli is a senior visiting media fellow at the Krach Institute for Tech Diplomacy at Purdue and the Atlantic Council's Global China Hub. Add him on LinkedIn.