Bidenomics Is Failing in the ‘Competition’ With China

News Analysis The Biden administration embodies the weakness of anemic diplomacy against Beijing’s continued predatory trade practices. Biden has been treading water on Beijing’s predatory trade practices, as illustrated by his trade representative’s recent public comments. U.S. Trade Representative (USTR) Katherine Tai recently said, across several meetings, that she does not want to inflame the “competition” with China, is looking forward to engaging with her Chinese counterparts, and that American concessions, in the form of more tariff exclusions, are on the table. In other words, Biden is holding out the carrot of appeasement to get Beijing back to the bargaining table, where the Chinese Communist Party (CCP) is strongest. The CCP is so strong, in fact, that it hasn’t even deigned to agree to a meeting yet, despite that it typically welcomes the “take-and-talk” game, where American politicians appear to make progress through talks, while Beijing changes facts on the ground to its advantage. That’s a win-win solution for Beijing and its hangers-on. The mainstream media is not making it easy on the Biden administration, given that it bought, hook, line, and sinker, the mainstream economists’ story that tariffs are a tax on Americans instead of an impost on Beijing. Sure, the tariffs are directly imposed on American importers from China (not the consumer) and only mediately against the Chinese exporter. They should be switched to a tariff against the Chinese exporter directly. And sure, some of those tariffs can get passed on to the consumer. But in many cases, Chinese firms may have reacted to American tariffs by dropping their prices to keep their market share by holding the cost to American importers steady. In other cases, American middlemen, like distributors and wholesalers, may absorb the costs before they reach the consumer. CME Group modeling assumes that fully half of the tariff costs are absorbed before reaching the consumer. According to CME, a 25 percent tariff on $500 billion of goods, which is more than what former President Donald Trump imposed, would only increase consumer prices by 0.32 percent on average. In other words, instead of spending $100, the American consumer spends $100.32. No big deal. More American jobs, stronger communities, a stronger nation, healthier government finances, and more bargaining power against China is well worth that 32 cents. But U.S. corporate profits lose about the same amount, and their blinkered bean counters ignore anything that doesn’t improve their profit margins. They scream loudly about the 32 cents, and they have the economic power to get the attention of corrupt politicians in Washington. The biggest American corporations that China accepts into its market are pushing for a withdrawal of the tariffs, which protect small- and medium-sized businesses from Chinese competition. Corrupt politicians care less about small businesses that don’t pay legalized bribes, in the form of campaign donations and revolving-door careers. It’s hard for small business to compete against unscrupulous corporate behemoths in Washington, as well as slave wages and a lack of environmental regulations in China. Yes, small business can be hit by higher input prices on the order of 32 cents, but over time as the economy readjusts to buying American, wages and profits increase to compensate for those higher prices. Paying good wages doesn’t come free. Prices go up a little, but they are for a good cause. Mainstream economists, who typically pander to the largest corporations, take the corporate side in the fight over tariffs, urging more unmitigated trade liberalization with China. These economists talk loosely about tariffs as a “tax on the American consumer” without discussing the complexities of other actors absorbing half the cost, the minuscule 32 cent effect on prices, or the negative environmental, national security, and labor externalities that result from reliance on China for consumer goods and strategic imports. Of course, China’s prices are cheaper. Considering all the externalities, that doesn’t make Chinese goods better for American consumers, who also depend on U.S. national security. That dogma was exploded by Trump’s economic adviser, Peter Navarro, who to this day is an outcast economist even as Biden maintains the tariffs that Navarro masterminded. Peter Navarro, then-director of the White House National Trade Council, at the CPAC convention in National Harbor, Md., on March 1, 2019. (Samira Bouaou/The Epoch Times) “The Biden Administration understands that President Trump’s trade policies appealed to a large domestic constituency that has watched the decline of the U.S. manufacturing and industrial base across multiple Presidents of both parties,” wrote Alex Gray, former chief of staff at the National Security Council and senior fellow at the American Foreign Policy Council, in an email. “Domestic politics and the shifting national consensu

Bidenomics Is Failing in the ‘Competition’ With China

News Analysis

The Biden administration embodies the weakness of anemic diplomacy against Beijing’s continued predatory trade practices.

Biden has been treading water on Beijing’s predatory trade practices, as illustrated by his trade representative’s recent public comments. U.S. Trade Representative (USTR) Katherine Tai recently said, across several meetings, that she does not want to inflame the “competition” with China, is looking forward to engaging with her Chinese counterparts, and that American concessions, in the form of more tariff exclusions, are on the table.

In other words, Biden is holding out the carrot of appeasement to get Beijing back to the bargaining table, where the Chinese Communist Party (CCP) is strongest. The CCP is so strong, in fact, that it hasn’t even deigned to agree to a meeting yet, despite that it typically welcomes the “take-and-talk” game, where American politicians appear to make progress through talks, while Beijing changes facts on the ground to its advantage. That’s a win-win solution for Beijing and its hangers-on.

The mainstream media is not making it easy on the Biden administration, given that it bought, hook, line, and sinker, the mainstream economists’ story that tariffs are a tax on Americans instead of an impost on Beijing.

Sure, the tariffs are directly imposed on American importers from China (not the consumer) and only mediately against the Chinese exporter. They should be switched to a tariff against the Chinese exporter directly.

And sure, some of those tariffs can get passed on to the consumer. But in many cases, Chinese firms may have reacted to American tariffs by dropping their prices to keep their market share by holding the cost to American importers steady. In other cases, American middlemen, like distributors and wholesalers, may absorb the costs before they reach the consumer.

CME Group modeling assumes that fully half of the tariff costs are absorbed before reaching the consumer. According to CME, a 25 percent tariff on $500 billion of goods, which is more than what former President Donald Trump imposed, would only increase consumer prices by 0.32 percent on average.

In other words, instead of spending $100, the American consumer spends $100.32. No big deal. More American jobs, stronger communities, a stronger nation, healthier government finances, and more bargaining power against China is well worth that 32 cents.

But U.S. corporate profits lose about the same amount, and their blinkered bean counters ignore anything that doesn’t improve their profit margins. They scream loudly about the 32 cents, and they have the economic power to get the attention of corrupt politicians in Washington.

The biggest American corporations that China accepts into its market are pushing for a withdrawal of the tariffs, which protect small- and medium-sized businesses from Chinese competition. Corrupt politicians care less about small businesses that don’t pay legalized bribes, in the form of campaign donations and revolving-door careers. It’s hard for small business to compete against unscrupulous corporate behemoths in Washington, as well as slave wages and a lack of environmental regulations in China.

Yes, small business can be hit by higher input prices on the order of 32 cents, but over time as the economy readjusts to buying American, wages and profits increase to compensate for those higher prices. Paying good wages doesn’t come free. Prices go up a little, but they are for a good cause.

Mainstream economists, who typically pander to the largest corporations, take the corporate side in the fight over tariffs, urging more unmitigated trade liberalization with China. These economists talk loosely about tariffs as a “tax on the American consumer” without discussing the complexities of other actors absorbing half the cost, the minuscule 32 cent effect on prices, or the negative environmental, national security, and labor externalities that result from reliance on China for consumer goods and strategic imports.

Of course, China’s prices are cheaper. Considering all the externalities, that doesn’t make Chinese goods better for American consumers, who also depend on U.S. national security. That dogma was exploded by Trump’s economic adviser, Peter Navarro, who to this day is an outcast economist even as Biden maintains the tariffs that Navarro masterminded.

Epoch Times Photo
Peter Navarro, then-director of the White House National Trade Council, at the CPAC convention in National Harbor, Md., on March 1, 2019. (Samira Bouaou/The Epoch Times)

“The Biden Administration understands that President Trump’s trade policies appealed to a large domestic constituency that has watched the decline of the U.S. manufacturing and industrial base across multiple Presidents of both parties,” wrote Alex Gray, former chief of staff at the National Security Council and senior fellow at the American Foreign Policy Council, in an email.

“Domestic politics and the shifting national consensus on trade requires the current Administration to pay lip service to the Trump trade doctrine, while preserving their negotiating leverage with China on the Democratic Party’s highest priority, addressing climate change through a global pact that includes China,” Gray continued. “The reality is that President Biden cannot have it both ways: China remains an economic aggressor against the United States and many of its allies and partners, and is fundamentally unserious about tackling climate change. The sooner the Administration recognizes this reality and acts to counter China’s economic predation with serious, comprehensive trade and investment policies, the better for U.S. economic and national security.”

The incremental changes that Biden is slowly pursuing have yielded little. Over a year into his presidency, he and his vaunted ally-focused strategies have done almost nothing to move the needle on China trade issues. France and Germany are not playing ball. Beijing isn’t even meeting with Biden’s trade representative, much less living up to its commitments to Trump.

The truth is that Trump’s tariffs started to divert U.S. trade, in a few halting but effective steps, away from China. In 2017, the U.S. trade balance with China was $375 billion, in China’s favor. In March 2018, Trump announced the imposition of major new tariffs, to which American importers immediately responded through preemptive stockpiling to avoid paying tariffs when they took effect. That actually increased the trade imbalance, which the mainstream media made a big deal about, but only in the short-term.

The tariffs started taking effect in July 2018 and were met with equal Chinese counter-tariffs for the first two months, after which Beijing’s tariffs amounted to just 30 percent of additional American tariffs. Trump had called Xi Jinping’s bluff that he would match American tariffs, dollar-for-dollar.

The first year of the tariffs saw a deterioration of the trade balance to $418 billion due to stockpiling.

Major new tariffs ceased in June 2019 after Trump imposed total tariffs, across two years, on over $360 billion worth of Chinese goods, and China retaliated with tariffs on over $110 billion of American goods.

In 2019, the intended trade effect of the tariffs finally matured. America’s negative trade balance dropped from the pre-tariff 2017 level of $375 billion to a post-tariff $344 billion. The difference of $31 billion will likely have been made up by increased American purchases from U.S. businesses and other countries. That may well have reshuffled global trade flows so that other countries will have purchased about that same $31 billion from China, but likely at slightly lower prices than we had paid.

Forcing American trade away from China may have increased our prices slightly, but it also likely put upward pressure on wages and taxable income in the U.S. and countries from which we newly imported, not to mention improved U.S. government revenues that could be used to lower taxes or the budget deficit. And shifting trade away from China, if that trade was in strategic goods like steel and ventilators, makes us less dependent upon Beijing in the next emergency, and decreases the revenues that Beijing can use against us or our allies if they were ever to carry through with their many threats of war, including against the United States, Australia, Taiwan, and the Philippines.

In 2020, the trade deficit dropped yet further to $310 billion. This, along with increasing concerns among Western investors about China’s economy, may have hit China hard enough to cause structural cracks in its economy that are now leading to major debt defaults such as the Evergrande crisis and energy blackouts, both in the past few weeks.

Epoch Times Photo
A worker walks in front of the Evergrande headquarters in Shenzhen, southeastern China on Sept. 26, 2021. (Noel Celis/AFP via Getty Images)

An economic downturn in China could help force the CCP to the bargaining table, but it could also be contagious for U.S. and European companies invested substantially in the country. Those companies, and Western companies with extensive exports to China, are lobbying in Washington to withdraw the tariffs before they can have even greater effects.

To Biden’s credit, he has not, thus far, removed Trump’s tariffs. But neither has he innovated on Trump’s strategies, for example, through successful lobbying of European capitals to join the United States in globalizing our China tariffs, and thus closing off Beijing’s economic escape routes. Instead, Biden appears to be using the tariffs as a bargaining chip, which proves that they are a thorn in the side of Beijing and not just a “tax on American consumers.”

That thorn would be much more effective were China to experience the coordinated closure of its market access in the United States, Europe, Japan, Vietnam, South Korea, and Britain, its biggest export destinations. This coalition of countries would then have real bargaining leverage over Beijing on a host of issues, including its military expansionism in the South China Sea, threats of a Taiwan invasion, planned increase in greenhouse gas emissions until 2030, and of course its failure to abide by its trade agreement with Trump. At that point, it would be Xi Jinping begging for trade talks, not Katherine Tai.

But that Biden strategy, if it even existed, is clearly failing. So far, Beijing is reneging and continuing its predatory practices. In response, Biden should be increasing tariffs.

But not having achieved a united alliance on trade, Biden is instead signaling defeat by asking for trade talks. He’s holding out the carrot of tariff relief in order to achieve trade talks with Beijing that will likely only yield symbolic concessions, if any.

And Biden is planning to spend $2 trillion on infrastructure, which may be a needed shot in the arm of the U.S. economy. But Beijing could also benefit, for example, through the sale of state-subsidized steel and concrete to American builders.

So far, Bidenomics has been ineffective and threatens to undo the progress made by the Trump administration against the CCP. There is no end in sight as Beijing continues its predatory trade policies and state-led economic growth. Small- and medium-sized American businesses, which have been progressively destroyed by exposure to subsidized China trade since the 1970s, need to act quickly to save what little market share they retain.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


Anders Corr

Follow

Anders Corr has a bachelor's/master's in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. He authored “The Concentration of Power” (forthcoming in 2021) and “No Trespassing,” and edited “Great Powers, Grand Strategies.”