WITA Panelists Say Scalpel, Not Sledgehammer Needed for Additional China Tariffs

Although experts gathered to talk about what legislative initiatives a House select committee on China might recommend, and they did that, they couldn't resist speculating about what the Biden administration will do to confront China's broken promises to liberalize and open up. The program, organized by the Washington International Trade Association, was held May 19.

Claire Reade, a former Assistant U.S. trade representative for China affairs, noted that although China's compliance with its phase one deal commitments is incomplete, there were "a huge array" of commitments they did fulfill in the agricultural sector.

Peter Harrell, former senior director for International Economics and Competitiveness, National Security Council during the Biden administration, declined to share internal deliberations about how to respond to China's performance under the phase one deal, but said that regardless of how good an effort you think China made, "the reality is that U.S. tariffs on China are here to stay."

"What the administration should be thinking about is how to strategically adjust those tariffs so that the actual tariff regime we have is in the U.S. national interest," he said. He said the conversation should be: "OK, where are the areas where we actually want to encourage some de-risking from China by hiking tariffs on strategic technologies, import dependencies that we might have," and where are the tariffs not strategic. He said tariffs on "some intermediate inputs for U.S. manufacturing might actually be against U.S. interests, and let's lower the tariffs in those sectors."

Reade said her sense is that's the approach that the administration is taking in its Section 301 quadrennial review.

Clete Willems, who worked in the Trump White House on trade with China, said he draws "a major distinction" between the products initially chosen for the Section 301 tariffs -- what became lists 1 and 2 -- and the later rounds of tariffs.

"We spent over a year trying to design" the targets, he said. "We had a complicated algorithm trying to measure substitutability. If you're going to modify, the answer is not just more tariffs on everything, the answer is to be more strategic about it."

Former U.S. trade representative Robert Lighthizer, in his testimony earlier in the week in front of the House Select Committee on the Chinese Communist Party, did suggest more tariffs on everything, either through a combination of withdrawing most favored nation tariffs and then hiking some Column 2 tariff rates higher, or by raising tariffs on Chinese goods high enough that the U.S. imports no more from China than it exports to China.

Moderator Michael Smart, managing director of Rock Creek Global Advisors, asked the panel if LIghthizer was right about what would happen if Congress withdraws permanent normal trade relations from China, as he advised.

"Would it be the best thing the United States could do for American manufacturing?"

Reade said she thinks former Google CEO Eric Schmidt quietly countered Lighthizer's advice, which she characterized as unsophisticated.

"We’re not in a situation where it’s just us and China," she said. "If we remove PNTR, and we raise tariffs, the other key economies are not going to follow us. Japan, South Korea, the EU, they’re going to step in and take the profits. So the result is going to be that we reduce the living standards in the United States, that we make it much more expensive to buy ordinary goods and ordinary inputs -- and we lose jobs," she said.

Willems noted that of the top 10 imports by value from China, there are no additional tariffs on Nos. 1-4, and there's a 7.5% tariff on routers, which is No. 5. Only two more of the top 10 are under Section 301 tariffs, though one of those is at 25%, he said.

"I think we have to realize how catastrophic it would be for the relationship if we actually revoke PNTR," he said. "You’re talking about 35 or 40 percent tariffs on all 10. It makes what we've done on 301 look like child’s play."

He said the fact that Lighthizer said Column 2 tariffs on cars are not high enough does implicitly recognize that going to Column 2 tariffs is "suboptimal."

"Let’s actually look tariff by tariff," he said, and think about "which are helping us achieve our strategic goals, and which are not."

Kelly Ann Shaw, who also served in the Trump White House on economic issues, said going to Column 2 is a bad idea. She noted that Rep. Andy Kim, D-N.J., elicited comments from Schmidt that he did not agree that the U.S. on "every product, whether strategic or not," should be "less reliant on China."

"We’ve got to be a lot smarter and more sophisticated about how we move," Shaw said, and she said that she hopes that Select Committee Chairman Mike Gallagher's use of the term "de-risking," rather than Lighthizer's language of "strategic decoupling" means he would address the tariff question with more nuance (see 2305180064).

In response to a question from International Trade Today, panelists agreed the committee members did not pick up on Lighthizer's proposal to raise tariffs until the trade deficit was erased.