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We've detected you are on Internet Explorer. For the best Barrons.com experience, please update to a modern browser. CHROME SAFARI FIREFOX We've detected you are on Internet Explorer. For the best Barrons.com experience, please update to a modern browser.GoogleFirefox Search News & Quotes Barron's TopicsStock PicksLists & RankingsMagazineDataAdvisorPenta Subscribe Now |Sign In Barrons Cutting China Tariffs Would Ease Inflation Expectations. The Golden Moment Is Coming Soon. Next: Consumers Are a Bright Spot for an Economy in Turmoil * * * * Share This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com. https://www.barrons.com/articles/inflation-china-tariffs-biden-economy-51662491454 * Economy & Policy CUTTING CHINA TARIFFS WOULD EASE INFLATION EXPECTATIONS. THE GOLDEN MOMENT IS COMING SOON. * * * * -------------------------------------------------------------------------------- COMMENTARY By Gary Clyde Hufbauer Sept. 7, 2022 2:00 am ET * Order Reprints * Print Article BARRON'S NEWSLETTERS THE BARRON'S DAILY A morning briefing on what you need to know in the day ahead, including exclusive commentary from Barron's and MarketWatch writers. I would also like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. I agree to the Privacy Policy and Cookie Policy. Enter your Email SIGN UP You have been successfully subscribed to The Barron's Daily. Your first delivery will arrive within two days. Continue Reading Text size Your browser does not support the audio tag. Listen to article Length 5 minutes AD Loading advertisement... 00:00 / 05:01 1x This feature is powered by text-to-speech technology. Want to see it on more articles? Give your feedback below or email product@barrons.com. thumb-stroke-mediumthumb-stroke-medium PRESIDENT JOE BIDEN IS WEIGHING A TARIFF CUT TO BRING DOWN INFLATION. Mandel Ngan/AFP via Getty Images About the author: Gary Clyde Hufbauer is a senior fellow at the Peterson Institute for International Economics. Progressive Democrats seldom agree with Republicans loyal to former President Donald Trump, but they join together singing the evils of globalization. According to this improbable chorus, imports are truly noxious. Their hymn claims that the rising share of trade in the American economy—some 25.9% in 2021 compared to 19.7% in 1980—ranks among the great malignancies of modern times. What the hymn ignores is that four decades of globalization not only boosted American economic growth but also assisted the “great moderation”—the steady decline in inflation from a norm of 6% in the early 1980s to under 2% before the Covid-19 pandemic. By throwing up import barriers, Trump did his best to retard American participation in world markets. When the pandemic interrupted supplies of everything from masks to semiconductors, and when governments responded by opening monetary and fiscal spigots, inflation erupted. Even without Trump’s new tariffs, the world economy had limited spare capacity to meet burgeoning American demand for merchandise of all kinds. As economist Caroline Freund shows in a forthcoming blog, import prices rose faster in the second half of 2020, all of 2021, and the first half of 2022 than general increases in the consumer price index, a common measure of inflation. For about a quarter of imports, foreign supply was just not available to meet greater U.S. demand. For about a third of imports, foreign supply was available, but at higher prices. In light of Freund’s findings, what difference would a decision to repeal Trump’s China tariffs make to U.S. inflation? The White House is considering a tariff cut, but has no particular deadline to compel action. Econometric analysis shows that when these tariffs were imposed in four tranches back in 2018, the higher cost was paid by U.S. firms purchasing intermediate goods such as auto parts and semiconductors and U.S. households purchasing final goods such as toys and furniture. Despite Trump’s claims, Chinese firms did not pay the tariffs; American firms and households did. But the higher costs imposed in 2018 cannot so quickly be reversed in 2022, owing to upheavals in the world economy. In the short term—meaning for the political calendar the weeks between now and the November elections—a presidential decision to lift tariffs would do very little to nudge the CPI rate down. Orders take time to ship and send through distribution channels. China zero-Covid policy amounts to a self-inflicted slowdown. Those measures are freeing up capacity, but shortages still exist, which means queueing times for new orders. In the medium term, however, say six months, ridding the U.S. of tariffs on Chinese imports would help dampen inflation expectations. The action would tell competing U.S. firms that benefit from high tariffs that the easy ride is over. Time to cut prices. Meanwhile, the sea change in President Joe Biden’s predilection to follow Trump’s protectionist path would be noticed by Wall Street and Main Street, and even by American households. This is the sort of concrete action that would dampen the rise in inflation expectations. Over the longer term, say a year, as central banks squeeze demand with higher interest rates, thereby returning labor and goods markets to more normal conditions, analysis by the Peterson Institute shows that elimination of China tariffs would cut the CPI by 1.3 percentage points. The payoff would come both from the direct impact on the landed price of imported goods and the indirect impact on prices charged by competing U.S. business firms. When inflation is running above 8% annually, a 1.3 percentage-point reduction may not seem like much, but every downtick means less burden on the Fed to raise interest rates. Biden could surprise himself, everyone else, and greatly irritate his progressive wing, by taking a presidential knife to other sacred cows grazing in protectionist pastures: lumber, fertilizer, steel, aluminum, the merchant marine, batteries, electric vehicles, and more. Decisive cuts are not likely, but Peterson Institute analysis indicates that up to two percentage points could be shaved from the CPI over the long term by meaningful liberalization. The golden moment for a deal on China tariffs will come when Presidents Biden and Xi Jinping of China meet at the G20 Summit in Bali, Indonesia, Nov. 15 and 16—after the U.S. midterm election and after Xi’s confirmation to a third term. The two leaders could tamp down tensions over Taiwan and then reset U.S.-China relations by repealing both Trump’s tariffs and China’s retaliatory tariffs. That would not bring glowing harmony, but it would signal a pause in the current march towards a Second Cold War. And bring some relief from U.S. inflation and a welcome boost to U.S. exports. Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com. -------------------------------------------------------------------------------- * Economy & Policy CONSUMERS ARE A BRIGHT SPOT FOR AN ECONOMY IN TURMOIL * * * * -------------------------------------------------------------------------------- By Jason English Sept. 14, 2022 3:00 am ET * Order Reprints * Print Article Your browser does not support the audio tag. Listen to article Length 5 minutes AD Loading advertisement... 00:00 / 05:23 1x This feature is powered by text-to-speech technology. Want to see it on more articles? Give your feedback below or email product@barrons.com. thumb-stroke-mediumthumb-stroke-medium A PERSON SHOPS IN THE DOLCE & GABBANA STORE IN MIAMI, FLORIDA. Joe Raedle/Getty Images About the author: Jason English is managing director of Equity Research at Goldman Sachs. Since late July, the largest U.S. retailer slashed its earnings outlook. The U.S. Bureau of Economic Analysis revealed that in the second quarter, sales of long-lasting goods like appliances and furniture fell, after inflation INFLATION ROSE MORE THAN EXPECTED. THE FED’S WORK ISN’T OVER. Falling energy prices brought down the cost of gasoline, but the mild slowdown in consumer prices isn't enough to derail the Fed's rate-hike plans. Continue reading , more than any point since the last recession. And the U.S. Federal Reserve reported that consumers’ credit-card balances grew at an exceptionally rapid 17% annual rate in the first half of 2022. Headlines like these can be jarring, but we believe they do not portend a consumer-led recession. To the contrary, our discretionary-cash-flow model suggests the worst already may be behind us—and a positive inflection is rapidly approaching. The overall U.S. economy is not in recession A RECESSION MAY BE A PRICE WORTH PAYING A downturn may be necessary to get inflation back into a tolerable range, writes Carl Tannenbaum. Continue reading , but we are in a recession for durable goods. This is not overly concerning, however. Consumers were flush with cash during the height of the Covid-19 pandemic and faced limited spending options. Sales Continue reading 4 minute read -------------------------------------------------------------------------------- More from News Corp * Realtor.com Looking to buy your first home? You’ve come to the right place. * PENTA Future Returns: Citi Finds Wealthy Families Optimistic and Seeking Opportunities * Realtor.com Colonial Built in 1688 in Massachusetts Is the Week's Oldest Home * 'My Lottery Dream Home' Finds 5 Supposedly Swanky Upgrades That Are Actually a Waste of Cash * Wall Street Journal King Charles III Pays Tribute to Queen Elizabeth II in First Speech Close CUTTING CHINA TARIFFS WOULD EASE INFLATION EXPECTATIONS. THE GOLDEN MOMENT IS COMING SOON. . From To Message SEND An error has occurred, please try again later. 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