In light of China’s recent military exercises near Taiwan, the Biden administration is carefully reconsidering its approach to tariffs on Chinese imports. While President Joe Biden has yet to make a definitive decision on the matter, his administration has been actively exploring various strategies to address the tariffs imposed on Chinese goods during the previous administration led by Donald Trump, with a primary aim of curbing surging inflation.
The Section 301 tariffs on Chinese imports, first implemented by President Trump in July 2018 and still in effect, have emerged as a focal point for discussions within the Biden administration. These tariffs, categorized into four tranches (Lists 1, 2, 3, and 4a), encompass a wide array of products, ranging from electronics to bicycles. Although President Biden initially expressed reservations about the tariffs, they remain in place, impacting the cost of Chinese imports.
Origin of China Tariffs
The introduction of tariffs on Chinese imports was a response to concerns regarding China’s alleged unfair trade practices, particularly concerning technology transfer and intellectual property. These tariffs, ranging from 7.5 percent to 25 percent, were imposed by President Trump under Section 301 of the Trade Act of 1974. This move initiated a series of retaliatory measures, resulting in tariffs covering more than 65 percent of U.S. imports from China and approximately 58 percent of U.S. exports to China.
By the end of 2019, over $300 billion worth of Chinese imports were subjected to tariffs, divided into four tranches. List 1, imposed in July 2018, implemented a 25 percent tariff on $34 billion worth of imports. List 2, initiated in August 2018, imposed 25 percent tariffs on $16 billion worth of imports. List 3, which encompassed around $200 billion worth of goods, carried a 10 percent tariff from September 2018. Lastly, List 4a imposed 15 percent tariffs on $126 billion worth of imports in September 2019, subsequently reduced to 7.5 percent.
Despite the signing of the Phase One trade deal with China in January 2020, which led to minimal reductions in tariffs, the majority of these tariffs remain intact. Legal challenges have arisen, questioning the legality of tariffs imposed beyond the initial $50 billion. As of now, the Biden Administration has not made substantial changes to the tariffs.
Impact of China Tariffs
A recent study has examined the trade-weighted average tariff rates from 2017 to 2022 year-to-date, reflecting the average tariffs paid by Americans for imports. In 2017, the U.S. trade-weighted average tariff rate stood at 1.51 percent. However, with the introduction of tariffs on Chinese imports in July 2018, this rate experienced a significant surge. By the end of 2019, the average tariff rate for imports had increased by over 95 percent due to the tariffs on Chinese goods. In 2017, the average tariff rate for imports from China was 2.68 percent, but this figure more than tripled following the imposition of tariffs by President Trump.
As of 2022 year-to-date, the trade-weighted average tariff rate currently stands at 3.16 percent, more than double the 2017 level. Importantly, the tariff rate for Chinese imports has quadrupled since 2017, reaching 11.82 percent. While the pace of tariff rate increases has slowed in recent years, these tariffs have contributed to substantially higher costs for over four years.
Debate Within the Administration
Since taking office, members of President Biden’s cabinet have held differing views on whether to maintain or modify the China tariffs. Some argue that removing the tariffs could help mitigate inflation, while others, including Ambassador Katherine Tai, believe the tariffs are essential for negotiating leverage against China.
Review of Necessity
The Trade Act of 1974 incorporates a “review of necessity” provision, which imposes an expiration date for Section 301 tariffs after four years. If domestic industries request tariff continuation at least 60 days before the four-year mark, the tariffs remain in place while a review assesses their effectiveness and economic impact. This review process has been initiated for List 1 tariffs, which reached the four-year mark in July 2022. Similar reviews are expected for Lists 2, 3, and 4a as their expiration dates approach.
Conclusion
The Section 301 tariffs on Chinese imports have played a significant role in shaping U.S.-China trade relations over the past four years. President Biden’s administration faces internal debates regarding their removal. Despite the potential to ease inflation, the tariffs remain in place, resulting in a fourfold increase in the trade-weighted average tariff rate for imports from China since 2017 and doubling the tariff rate for U.S. imports in general. The administration’s ongoing deliberations on this matter will have a profound impact on trade between the two largest economies in the world.
