Ending China Tariffs Will Worsen America’s Economy

Team Biden facing stagflation risk

People walk by the New York Stock Exchange (NYSE) on May 12, 2022. Prices of clothing, food, gas, and cars are just a few of the items that are hitting Americans' pocketbooks despite historically low unemployment. Spencer Platt/Getty Images

Commentary

The Biden administration is getting desperate about inflation, a rapidly declining stock market, and an impending recession.

They know America’s economic doldrums will hit the Democrats in the 2022 midterm and 2024 presidential elections. It will hit hard, just like it’s hitting American pocketbooks now. We’re paying more than $5 per gallon for gas, and summertime is hot at the pump. Heat tends to make people upset with their politicians.

So Treasury Secretary Janet Yellen is doing the air-conditioned talk show circuit to gab about inflation, minimize recession worries, and propose remedies. They include, most prominently, the U.S. Federal Reserve raising interest rates. That actually increases the risk of a stock market crash and recession.

Yellen is also advocating for removing China tariffs as an anti-inflation measure. Removing the tariffs is a misguided remedy that soft-on-China politicians already wanted. They’re throwing the inflation card to revive a lousy plan.

Even Goldman Sachs, which is typically soft on China and anti-tariff, concedes that removing the tariffs would only decrease prices by about 0.25 percent. That would be as little as a 25-cent savings on your next $100 trip to Kmart.

“Our U.S. Economics team estimate that the Trump administration’s tariffs increased the core price level by 0.25% cumulatively,” reads research published by Goldman Sachs on June 8. “The actual impact on prices would be even smaller when considering partial tariff reductions.”

And removing China tariffs will do nothing against the impact of gas prices. In fact, the opposite could result. If tariff removal results in another flood of cheap Chinese products that again drives out U.S. companies, it could decrease U.S. manufacturing and wages, making it even harder for Americans to fill their wallets and gas tanks.

Customers browse food stalls inside Grand Central Market in downtown Los Angeles on March 11, 2022. Fears of stagflation in the U.S. economy are on the rise. Patrick T. Fallon/AFP via Getty Images

So removing China tariffs will do little against inflation that’s currently north of 8 percent, and doing so could make life for Americans more difficult. That’s especially the case considering that one of the main drivers of inflation is Russia’s invasion of Ukraine—caused, in part, by too much European reliance on Russian gas.

If China invades Taiwan, we can expect inflation to increase again. China will invade Taiwan if the United States again becomes too dependent on the country for cheap goods. Dependency fuels disrespect, and if Beijing disrespects Washington, it will think (such as Moscow wrongly did) that it can get away with murder.

Yellen is wrong about China tariffs, just as she was wrong about her prediction not long ago that inflation was “transitory.”

The Federal Reserve increasing interest rates is also a bad idea. It will make more people want to lend money to the government and suck money out of the private economy. Sellers will be forced to lower their prices to unload stock. That’s a short-term inflation fix. But at what cost?

Sellers will lose money, and there will be less money for investment and jobs. They won’t be able to replenish their stock, which will raise prices—a recession and inflation at the same time, which is called “stagflation.”

Yellen is already trying to calm American nerves by saying a recession is unlikely. A recession is defined as two successive quarters with negative gross domestic product growth. In the first quarter of 2022, there was minus 1.5 percent growth. One more quarter like that and we’re in a recession. This isn’t a good time to increase interest rates.

Enduring the small amount of inflation from China tariffs for a short while may not be as bad as some say, if higher prices incentivize investment and a reorientation of trade toward other markets, including our allies and friends globally, as well as American communities themselves.

Draconian measures that hurt the economy, such as half-percentage point interest rate rises in the context of supply-driven inflation, are a bad idea and could bring a recession and more pain for stock markets. If moderate inflation is allowed, the market could correct itself.

Higher prices signal to investors that there are good opportunities, to workers that they need to work more, and to business owners that they need to pay more in salaries. That’s all good for employee pocketbooks—and for the economy.

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