President Joe Biden’s administration is reportedly scrambling to put in place new China tariffs as the 2024 election approaches.
“The US will impose new, elevated tariffs that focus on key industries including electric vehicles, batteries and solar cells. Other existing China levies are expected to largely be maintained. An announcement is scheduled for Tuesday, two of the people said,” Bloomberg news reported.
The Biden administration has struggled over the issue of tariffs. While running for office, Biden derided Donald Trump’s trade policies, claiming that China’s predatory mercantilism posed no threat to the U.S. economy or national security. Many expected that Biden would repeal at least some of the tariffs Trump imposed on exports from China.
But economic nationalism in the U.S. has proved harder to dislodge, a sign of how the once heretical views on trade advanced by Trump have now become embedded in the political mainstream.
U.S. Trade Representative Katherine Tai has reportedly been instrumental in fighting off the forces inside the Biden White House that sought capitulation to demands from China and corporate America for a retreat on China tariffs.
Plans to raise tariffs on electric vehicles and other green tech imports are similarly politically motivated. Senate Majority Leader Chuck Schumer last week joined a group of politically embattled Midwestern Senate Democrats to urge Biden to raise tariffs on China.
Because the Biden administration’s new found willingness to embrace tariffs is driven by election year politics, it may not survive long if the president is re-elected. Many in Washington expect a second-term Biden would be far more open to reducing tariffs because he would no longer have to worry about the risk of voter backlash.
The so-called strategic tariffs are unlikely to do much to affect the overall trade imbalance between the U.S. and China because China’s economic policy will continue to require running huge trade deficits with the U.S. Instead, exports will shift to areas not targeted by the tariffs. As a result, other parts of the U.S. industrial base not singled out for protection by Biden are likely to suffer.
In a thread on X, China trade scholar Michael Pettis explained:
This doesn’t really deal with overall deindustrialization. The tariffs will certainly reduce US imports of electric vehicles, batteries and solar cells from China, but they will not affect trade imbalances for either country.
That’s because as long as China continues to generate large amounts of excess savings, and as long as these are exported directly or indirectly into US financial and asset markets, China will continue to resolve weak domestic demand with trade surpluses, and the US will continue to run the corresponding trade deficits.
This means that any strengthening of the American electric vehicles, batteries and solar cells sectors is likely to come at the expense of other manufacturing sectors.
The new tariffs will also not address the problem of China diverting trade through third-countries to avoid U.S. import duties. Excluding China, the U.S. trade deficit is now near record highs, in part because products originating in China or made in Chinese-owned factories continue to flood U.S. markets.
“If America truly wants to reduce its trade deficit through tariffs, it needs to increase tariffs on all US imports,” a report from the Japanese bank Nomura recently said. “Trump’s recent idea of a 10% ‘ring around the country’ should not be dismissed lightly.”
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