What Biden’s tariffs on Chinese imports may mean for American jobs, the economy and inflation

The impact of Biden’s tariffs on Chinese imports on American jobs, the economy, and inflation

Throughout history, countries have implemented tariffs to protect their domestic industries. However, research and historical data have shown that the economic effects of tariffs often fall short of expectations.

Recently, the Biden administration announced a new round of tariffs on Chinese exports in strategic industries related to national security. While economists predict that these tariffs, totaling $18 billion, will have a minimal immediate impact on GDP, inflation, and monetary policy, the overall implications may be more complex.

Economist Joe Brusuelas at RSM US stated that these tariffs are just the beginning of a long period of economic conflict between the US and China. This announcement builds upon former President Donald Trump’s previous tariff program, which imposed heavy tariffs on China and other trading partners, still in effect today.

Trump had campaigned for even higher tariffs if re-elected, including a 10% across-the-board tariff on all imports. Economists have warned that such a move would not only result in significant job losses in the US but also fuel inflation.

These new tariffs will be implemented gradually between now and 2026, coinciding with a strong job market, robust economic growth, and high consumer spending. However, they also come at a time when the US is struggling with elevated inflation, leading to higher interest rates.
According to Ryan Sweet, the chief US economist at Oxford Economics, President Biden’s tariff plan is unlikely to have a significant impact on monetary policy. Sweet stated that the additional tariffs will have minimal effects on inflation and GDP, and therefore will not provide justification for keeping interest rates high. He also noted that the Federal Reserve will not overreact to these tariffs and inflate their importance.

Sweet’s analysis remains consistent even after learning the full extent of the Biden administration’s tariffs. He told CNN that expectations should not change significantly based on this information.

Looking at previous instances of tariffs, studies have shown mixed results. When President Bush imposed tariffs on steel and aluminum in 2002, it led to higher prices for American steel-consuming industries and job losses in the steel industry, particularly among smaller firms. President Obama’s tariffs on Chinese tires in 2009 saved jobs in the US tire manufacturing industry but resulted in higher prices for consumers. The tariffs imposed by President Trump in 2018 did not lead to an immediate boost in manufacturing employment but instead caused job losses and higher prices for consumers due to increased input costs and retaliatory tariffs, as noted by Federal Reserve economists.

Ultimately, these tariffs have costs that are borne by consumers.
According to Sweet, tariffs are often more politically motivated than economically justified.

Economists generally view tariffs as a disadvantageous policy because they hinder a country’s ability to specialize, disrupt the flow of goods and services, and result in a misallocation of resources. Additionally, consumers and producers usually end up paying higher prices when tariffs are implemented.

This is because tariffs impose taxes on imports, which increase costs for US distributors, retailers, and ultimately, consumers.

In a 2023 study, the US International Trade Commission found that US importers bore most of the cost of the Trump tariffs. Even worse, some businesses took advantage of the trade war by further increasing prices.

Goldman Sachs discovered that tariffs allowed US producers and non-Chinese exporters to opportunistically raise their prices as well.

The New York Fed estimated that the 2018 tariffs cost US households $419 per year due to higher taxes and market inefficiencies. This cost was expected to double as the tariffs took full effect in 2019.

As time has passed, the positive economic effects of tariffs have become even less clear.

According to economists in a National Bureau of Economic Research working paper published in January 2024, the overall economic impact of import tariffs, retaliatory tariffs, and agricultural subsidies was, at best, negligible and possibly mildly negative for US jobs and businesses.

However, the trade war did have political benefits, as it strengthened support for the Republican party in the US heartland and communities most affected by the tariffs, according to researchers in the same NBER working paper.
The implementation of tariff protections in certain areas resulted in a shift in political affiliation and voting behavior, with residents becoming less likely to identify as Democrats and more likely to support President Trump. Despite the economic costs, voters responded positively to the extension of tariff protections for local industries.

The impact of the Covid-19 pandemic on supply chains has complicated the analysis of how the tariffs implemented in 2018-2019 affected US manufacturing and trade. Initially, US importers started to reduce reliance on Chinese goods. However, once the pandemic hit and consumer demand in the US surged, domestic inventory levels decreased rapidly, leading to a resurgence in imports from China.

Nevertheless, by the end of 2023, imports from China had decreased by 3% compared to 2019. In contrast, imports from South Korea, Singapore, Taiwan, and Vietnam saw a significant increase of 50%. This suggests that Chinese businesses may be relocating their operations to these countries to avoid the impact of the Section 301 tariffs.

Recent data on ocean and air freight also raises suspicions that China may be attempting to bypass US tariffs through Mexico. Shipping container imports from China to Mexico saw a substantial surge of 60% in January and 34% in the first quarter, according to Xeneta, an analytics and logistics company specializing in ocean and air freight.

These developments are notable and indicate potential strategies being employed by China to navigate the impact of US tariffs.
He stated that a trade lane that was once considered underdeveloped has now transformed into one of the most heavily trafficked routes worldwide.

He emphasized that it is clear that the high volume of imports is not solely intended for domestic consumption within Mexico.