Former US ambassador says raising tariffs on China can lower inflation

Former US ambassador David Adelman said removing tariffs on imported Chinese goods would strip 1% of US inflation over time and restore confidence in the economy, which could help President Joe Biden at the ballot box.

“Inflation will be the number one issue in the November US midterm elections,” Adelman told CNBC’s “Squawk Box” on Monday.

“While the president is limited in his ability to control inflation, there is one important tool in his toolbox,” said Adelman, who served as the US ambassador to Singapore during the Obama administration.

“This is the ability to relieve the pressure on the US economy and American consumers caused by the extremely high tariff rates that are imposed on more than $370 billion in Chinese imports annually.”

“Many economists say that over time, you could have a full 1% drop in CPI, which is very important for American consumers,” he said, referring to the CPI, which is a key measure of inflation.

While former President Donald Trump’s trade war with China was popular among American voters on both sides of the aisle in 2018, Adelman said the efforts were economically unviable and did not bring “meaningful” trade benefits.

“I think the evidence is in the candy. Not only has there not been any negative impact on the Chinese economy, it has had an impact on the US economy. It was a throwback to the US economy,” Adelman, who is also managing director of KraneShares, said.

“Biden is beginning to realize with the formation of the election, the economy is going to be most important to voters. If the president can do anything to relieve the pressure, he has to do it. In the end, a good economy should make good policies,” he said.

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The US government is reviewing Trump-era trade tariffs on Chinese goods, a process that has been triggered by legal rulings rather than by US political desire to reset relations.

A growing number of economists, political observers and analysts have called on the Biden administration to cut tariffs as inflation and recession fears grow. Former Treasury Secretary Larry Summers echoed Adelman’s comments earlier Sunday, saying Raising tariffs on Chinese imports It was “done right”.

It will lead to lower prices [and] It enables us to take a more strategic approach when dealing with China. It would take a 1% or more CPI discount over time, and lowering tariffs is the right thing to do. “I hope the administration will find a way to do that,” Summers said on NBC News’ “Meet the Press.”

Treasury Secretary Janet Yellen said some tariffs on China “serve no strategic purpose” and that Biden was considering removing them as a way to cool inflation.

Not only did China not meet the targets set by the United States in the trade deal, but analysis from the Peterson Institute for International Economics showed that tariffs increased inflation for both consumers and producers in the United States.

In the year to November 2021, US tariffs on Chinese goods added 0.26 percentage points to the CPI, Kathryn Ross, a non-resident fellow in trade policy at PIIE, said in an analysis earlier this year. In the year after the United States imposed tariffs on Chinese goods, producer prices also rose 1%, also by Ross analysis.

In March, Chad Bown, a fellow trade policy at PIIE, said that China had not bought any of the additional $200 billion in US exports it committed to buying under the phase one deal.

In a note last week, Mark Williams, chief economist at Asia Capital Economics, said that in terms of the impact on the Chinese economy, tariffs fell by just over 0.5% of China’s GDP.

“Some Chinese companies have been able to evade it by rerouting shipments to the United States via third countries, particularly in Southeast Asia. This may have offset the as much as half Williams said.

Adelman, the former ambassador, said Biden could remove some tariffs without the daunting task of seeking congressional authorization in two ways.

He could order temporary exemptions from certain tariffs or sign an executive order to raise tariffs while protecting the distinct American industries with which China was competing.

Removing tariffs will not only be beneficial to American consumers in the short term and over time, but will help the president restore US-China relations.

David Edelman

Former US Ambassador

American consumers will certainly reward him for doing so,” Adelman said.

“Removing tariffs will not only be beneficial to American consumers in the short term and over time, but will help the president restore relations between the United States and China.”

“At the end of the day, having economic engagement between the world’s two largest economies would be good for the world’s largest economy.”

However, Robert Daly, director of the Wilson Center’s Kissinger Institute in China and the United States, was skeptical about Washington’s drive to raise tariffs and its contribution to inflation.

He said the political pressure to stay tough on China would outweigh Biden’s desire to care for consumers and ease the burden of their high cost of living.

“If he simply raises those tariffs unilaterally without getting anything from China, he will face a lot of pressure from Republicans, especially in the Senate, who will call him lax on China,” Daley said.

Like Daly, Williams of Capital Economics was unsure that removing tariffs would do much to tame inflation. Doing so, he said, would only lower the CPI by “a few tenths of a percent” and not by 1 percent as others had expected.

“The tariff situation hasn’t caused inflation to rise significantly,” he told CNBC.