Biden to Continue Trump's Tariffs on China
US trade representative Katherine Tai vows to Enforce Trump's ‘Phase One’ Trade Deal with China.
- U.S. Trade Representative Katherine Tai is set to deliver a speech Monday, outlining the Biden administration’s China trade strategy. She will be speaking at the Center for Strategic and International Studies, a Washington think tank.
- Washington must enforce the phase one trade deal with China, and will raise broader policy concerns with Beijing, Tai is expected to say.
- “China made commitments intended to benefit certain American industries, including agriculture that we must enforce,” according to prepared remarks.
- Tai is also expected to announce a targeted tariff exclusion process for firms to avoid punitive levies, and have “frank conversations” with Chinese counterparts in the coming days.
Phase One Deal
In the Phase One trade deal, signed in January 2020, with much bravado, Beijing pledged to buy at least $200 billion more U.S. goods and services over 2020 and 2021, compared with 2017.
Biden to Keep Trump's Tariffs Intact
Phase One 2020 Outcome
A quick check of my calendar shows that today is October 4. It appears that it took the Biden administration 9 months to figure out Trump's deal wasn't working.
Of course, Trump said the deal was working. He also proclaimed "Trade wars are good and easy to win." So I am sure that explains why this revelation is now such a shock.
Chaotic and Ineffective
"The administration officials took pains to contrast Biden’s approach to that of his predecessor, which they called chaotic and ineffective. Biden seeks to shore up U.S. supply lines and promote domestic manufacturing while enlisting U.S. allies in a campaign to press China to drop the subsidies that distort global markets, the officials said."
Administration officials have discussed using Section 301 of a 1974 trade law to mobilize European and Asian allies for a WTO trade complaint over structural elements of the Chinese economy they say disadvantage its trading partners.
The above comments from the Washington Post.
Polite and Ineffective vs Chaotic and Ineffective
In essence, Team Biden will continue Trump's tariffs just more politely.
Yeah, that'll sure work especially when Germany is doing everything it can to keep its export machine alive and that includes China.
Note that China was Germany's most important trading partner in 2020 for the fifth consecutive year.
Tariffs Cannot Fix Trade Imbalances
Tariffs will not and cannot fix trade imbalances. The source of all these problems is neither NAFTA nor China's admission to the WTO.
NAFTA was actually very beneficial to the US while the latter complicated trade imbalances.
Prior to 1971, trade deficits were financed by an outflow of gold. If countries had deficit spending, gold flowed out.
Nixon ended convertibility of gold in 1971 and that is the source of a whole slew of problems.
Global Consumers of Last Resort
The US is stuck with the reserve currency because we have the largest, most open capital markets in the world, the world's largest bond market, and a far better business climate than the EU, China, or Japan.
To ensure the US remains the curse holder, the EU and Japan have negative rates, China does not float the Yuan but props up corrupt SOEs, and Germany punishes the rest of the EU.
Giant Sucking Sounds, Mexico, NAFTA, Global Trade, and Gold
Everyone wants to export to the US, and they do.
Trump did not fix the problem and Biden won't either. Neither understands the basic problem.
The "absence of capital controls has made the United States the default adjustment for global capital imbalances," said Michael Pettis.
Gold was that capital control mechanism and now there are none. Trade agreements with China are not worth the toilet paper they are printed on.
How much longer this setup can continue before it blows up in a currency crisis, war with China, or some other major economic disruption remains a key mystery.
For discussion and many charts please see Giant Sucking Sounds, Mexico, NAFTA, Global Trade, and Gold
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