The Biden administration is blaming record high inflation partly on Trump’s China tariffs

[beijingwalker]

The Biden administration is blaming record high inflation partly on Trump’s China tariffs​

BY NICHOLAS GORDON
April 26, 2022 7:07 PM GMT+8

U.S. tariffs on Chinese imports survived a change in administration, but the trade-war-era levies may not survive record inflation.

“We’re certainly looking at where we see costs being raised and, at a time where we’re seeing heightened inflation, certainly [import tariffs are] on our minds,” White House Press Secretary Jen Psaki said on Monday, noting that the Biden administration is reviewing whether to lift the Trump-era tariffs on Chinese goods.

Psaki’s comments follow similar remarks made by other Biden officials. On Thursday, Deputy National Security Advisor Daleep Singh said the U.S. might consider lowering tariffs on “non-strategic” products, during an event at the Bretton Woods Committee.

Singh noted that the administration wanted to “reframe the purpose of these tariffs so that they’re advancing real, strategic priorities of the United States.” Then, on Friday, U.S. Treasury Secretary Janet Yellen said that lowering tariffs to combat inflation was “worth considering” in an interview with Bloomberg TV.

The tariffs in question were first implemented in 2018, when the Trump administration slapped steep levies on over $200 billion worth of Chinese goods, to combat what then President Trump described as China's "unfair practices," such as forcing foreign companies to exchange technology for access to the Chinese market, and reportedly dumping cheap goods in the U.S.

Trump's action kickstarted a trade war between China and the U.S. that has yet to be resolved, after both sides ratcheted up tariffs on each other's exports.

Average tariffs on Chinese imports are now levied at 19.3%, according to the Peterson Institute of International Economics (PIIE), and cover over two-thirds of all goods the U.S. buys from the country. The total basket of tariffed goods is worth roughly $335 billion in annual trade (using 2017 numbers, before the tariffs came into effect).

After President Biden took office in January 2021, his administration largely elected to keep Trump’s tariffs in place, and in January of this year, Biden said that “we’re not there yet” when it comes to lifting the tariffs. Biden cited China's failure to meet an import quota Beijing agreed to in 2020 as part of a "Phase 1" trade agreement to end the trade war.

Despite the tariffs making Chinese goods more expensive for American importers, China’s trade surplus with the U.S. has continued to increase, hitting $396.6 billion in 2021, up 25% from the year before.

In March, PIIE economists estimated that a trade liberalization policy equivalent to a 2-percentage-point reduction in tariffs could knock U.S. inflation down 1.3 percentage points from its current rate—which they calculate would be equal to almost $800 per U.S. household.

Former U.S. Treasury Secretary Lawrence Summers, commenting on PIIE's research, argued those estimates were conservative, noting that reducing tariffs would increase competition among producers, leading to lower prices overall on top of the price reduction from removing tariffs. But some economists are skeptical that removing tariffs will have a long-term effect on U.S. inflation.

“The way you combat inflation is by either increasing supply relative to demand or…reducing demand relative to supply” says Michael Pettis, finance professor at Peking University and coauthor of Trade Wars Are Class Wars. “Imposing tariffs and removing tariffs do neither.”

Yet another person who may not be so keen on reducing tariffs against Chinese goods quite yet is U.S. Trade Representative Katherine Tai, who is leading trade negotiations with China. Tai told the U.S. House Ways and Means Committee last month, “No negotiator walks away from leverage, right?”

Inflation may help end some of the U.S. tariffs on China

Several Biden officials have noted that reducing tariffs was being considered as a way to tackle record U.S. inflation.

fortune.com

 

[beijingwalker]

U.S. goods trade deficit hits record high; Q1 GDP growth estimates slashed​

By Lucia Mutikani

• Goods trade deficit increases 17.8% to $125.3 billion
• Goods imports jump 11.5%; exports increase 7.2%
• Retail inventories rise 2.0%; wholesale stocks up 2.3%
• Pending home sales fall 1.2% in March

WASHINGTON, April 27 (Reuters) - The U.S. trade deficit in goods widened to a record high in March likely as businesses who are worried about shortages front-loaded imports after Russia's invasion of Ukraine, raising the risk that economic growth stalled in the first quarter.

The report from the Commerce Department on Wednesday also showed solid increases in retail and wholesale inventories. That could offset some of the hit to gross domestic product growth from the sky-high trade gap.


The data prompted economists to downgrade their already low GDP growth estimates for the first quarter to show the economy barely growing or even contracting. The government is due to publish its snapshot of first-quarter GDP on Thursday. Economists cautioned against reading too much into any number as it would be a misleading picture of the economy.

"While first-quarter GDP growth looks weak overall, domestic final sales performed fairly well during the quarter," said Daniel Silver, an economist at JPMorgan in New York.


The goods trade deficit jumped 17.8% to an all-time high of $125.3 billion. The increase likely reflected both higher volumes and prices. Imports of goods accelerated 11.5% to $294.6 billion. They were boosted by a 15.% surge in imports of industrial supplies, which include petroleum products.

Trade balance
Imports of consumer goods vaulted 13.6%, while those of motor vehicles increased 12.0%. There were also solid gains in imports of food and capital goods.


"Front-loading of imports related to the Russia-Ukraine war likely drove much of the import spike, as firms boosted inventories of commodities and finished goods in anticipation of potential shortages," Goldman Sachs said in a note.

The United States and its allies have imposed a range of sanctions against Russia for invading Ukraine. Both Russia and Ukraine are major exporters of commodities, including wheat and sunflower oil.

Exports of goods increased 7.2% to $169.3 billion. They were led by a 12.3% rise in exports of industrial supplies. Motor vehicle exports advanced 8.4%. There were also increases in exports of food, capital and consumer goods.

Trade has subtracted from GDP growth for six straight quarters, the longest such stretch since the beginning of 2016. With the goods trade data in hand, Goldman Sachs lowered its first-quarter GDP estimate to a 1.3% rate from a 1.5% pace. JPMorgan slashed its forecast to a 0.7% pace from a 1.1% rate. IHS Markit believes the economy actually contracted at a 0.6% rate, a downgrade of 0.7 percentage point.

The surge in imports is being driven by businesses replenishing inventories amid strong domestic demand. Wholesale inventories rose 2.3% in March after shooting up 2.6% in February. Retail inventories increased 2.0% after gaining 1.5% in February. Motor vehicle stocks rose 1.2%.

Excluding motor vehicles, retail inventories increased 2.3% after rising 1.5% in February. This category goes into the calculation of GDP. Inventories added 5.32 percentage points to the fourth quarter's robust 6.9% growth pace.

Wholesale inventories
Economists are split on whether inventories contributed to growth in the first quarter. They would need to increase by more than the fourth quarter's $193.2 billion rate.

While the housing market likely supported GDP growth last quarter, momentum is slowing as mortgage rates and home prices surge. Other data on Wednesday from the Mortgage Bankers Association showed applications for a loan to buy a home decreased 8% last week from a week earlier.

Cooling housing demand was corroborated by a third report from the National Association of Realtors showing its Pending Home Sales Index, based on signed contracts, fell 1.2% in March to 103.7. That was the fifth straight monthly decline and pushed contracts to the lowest level since May 2020.

Pending home sales rose in the Northeast, but fell in the South, Midwest and West. Economists had forecast contracts, which become sales after a month or two, would decline 1.6%. Pending home sales dropped 8.2% in March on a year-on-year basis.

Pending home sales
Data last week showed sales of previously owned homes tumbled to the lowest level in nearly two years in March.

The 30-year fixed-rate mortgage averaged 5.11% during the week ended April 21, the highest since April 2010 and up from 5.00% in the prior week, according to data from mortgage finance agency Freddie Mac.

Reports on Tuesday showed the S&P CoreLogic Case-Shiller's 20 metropolitan area home price index surged a record 20.2% on a year-on-year basis in February. Home prices measured by the Federal Housing Finance Agency accelerated 19.4% in the 12 months through February.

"The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor," said Lawrence Yun, NAR's chief economist.

Mortgage rates are set to rise further, with the Federal Reserve expected to hike interest rates by 50 basis points next week, and soon start trimming its asset holdings.

The U.S. central bank raised its policy interest rate by 25 basis points in March, the first rate hike in more than three years, as it battles surging inflation.

U.S. goods trade deficit hits record high; Q1 GDP growth estimates slashed

The U.S. trade deficit in goods widened to a record high in March likely as businesses who are worried about shortages front-loaded imports after Russia's invasion of Ukraine.

www.reuters.com