Happy Monday! Memorial Day is a week away, but the days leading up to the holiday should be relatively quiet in Washington, D.C., with President Joe Biden visiting Asia and the House not is session. Here's what's going on:
As Advisers Debate, Biden Considers Cutting Trump Tariffs on China
President Joe Biden said Monday that he is considering cutting Trump-era tariffs on Chinese goods as a measure to combat inflation.
"I am considering it. We did not impose any of those tariffs. They were imposed by the last administration and they're under consideration," Biden said at a news conference in Tokyo with Japanese Prime Minister Fumio Kishida.
Biden’s comment comes as administration officials and White House advisers are reportedly engaged in heated debate over whether to cut the tariffs of up to 25% imposed by former President Donald Trump on hundreds of billions of dollars in goods imported from China annually.
Treasury Secretary Janet Yellen last week criticized the tariffs, saying that some of them “seem as though they impose more harm on consumers and businesses" and adding that they “aren't very strategic in the sense of addressing real issues we have with China — whether it concerns supply chain vulnerabilities, national security issues, or other unfair trade practices.” Biden said Monday he would discuss the issue with Yellen when he returns from Asia.
While Yellen, Commerce Secretary Gina Raimondo and others have pushed for tariff relief, other administration officials and Biden advisers have pushed back on the idea. U.S. Trade Representative Katherine Tai “wants to hold off for a broader China trade strategy that addresses protecting U.S. jobs and China's behavior in global markets,” Reuters reported last week.
“Like any negotiator, Tai does not want to surrender a bargaining chip without getting something in return,” The Washington Post’s David J. Lynch explained in an article Friday. “But she also doesn’t want to abandon tariffs to address an immediate inflation problem at the expense of the country’s long-run economic climate. Tai sees the tariffs as encouraging investment in U.S. industries that would be less attractive if they were unprotected against unfair Chinese competition.”
The politics: Other Biden advisers reportedly argue that the president risks looking weak on China and opening himself up to Republican attacks if he rolls back tariffs. And while business groups including the U.S. Chamber of Commerce favor reducing tariffs, progressives, some industry groups and unions — a key Democratic constituency ahead of November’s midterm elections — oppose the idea.
The economics: Economists and others point out that imports from China have not been the main drivers of inflation. “The cost of Chinese imports,” the Post’s Lynch writes, “has increased by 4.6 percent over the past 12 months, well below the overall jump in the cost of living.”
Analysts also say that the tariffs have failed to achieve their objectives — the trade deficit with China is on a record pace this year and complaints about China’s trade practices remain. But economists also suggest that cutting tariffs may have only a somewhat modest effect on inflation, especially with supply chain disruptions and Chinese factory shutdowns due to Covid-19 still factors. And any benefit would take time to be fully realized.
A March study by economists at the Peterson Institute for International Economics found that ending tariffs would reduce the consumer price index measure of inflation by 1.3 percentage points, or $797 per household. The index in April was 8.3% higher than a year earlier. “While a 1.3 percentage point haircut might seem small when inflation is raging at more than 7 percent, the relief is not trivial,” the authors wrote. An earlier study also from the Peterson Institute for International Economics found that removing tariffs on Chinese products could lower CPI inflation by about 0.3 percentage points and said that “this one-time drop in the price level would put only a small, short-lived dent in overall inflation.”
Economist Jason Furman, who led the Council of Economic Advisers under President Obama, told The New York Times that removing all Chinese tariffs would reduce the Consumer Price Index by about half a percentage point. But, he says, cutting tariffs is the biggest step Biden could take. “It’s larger than anything the White House or [Federal Reserve] could do within six months,” Furman told Politico. “It is the biggest tool they have, everything else is quite small compared to it.
Why it matters: Biden faces tremendous pressure to bring down inflation, which remains a top concern for voters, as fears of a recession also mount. A CBS News poll released Sunday found that 69% of Americans rate the economy as “very bad” or “fairly bad,” compared with 26% who call it “very good” or “fairly good.”
Biden on Monday said in response to a reporter’s question that a recession is not inevitable, but he again acknowledged Americans’ economic concerns. “Now, does that mean we don’t have problems?” Biden said. “We do. We have problems that the rest of the world has, but less consequential than the rest of the world has because of our internal growth and strength.”
But as Biden looks to address inflation, the administration debate over tariffs reflects a broader one among Democrats “over whether globalized trade has done more to help or harm Americans, and how the Democratic Party should approach trade,” The New York Times notes.
The bottom line: “[W]ith his advisers split, the potential economic gains limited and the danger of Republican attacks for being ‘soft on China’ looming, Biden is unconvinced,” The Post’s Lynch reported last week. And the Times adds: “Some Biden administration officials appear to favor an outcome that would lift certain tariffs while increasing other trade penalties on China, a process that would take at least several months.”
US Households Felt Flush in 2021: Fed Report
In the fall of 2021, U.S. households reported the highest level of financial well-being in at least nine years, the Federal Reserve said in a new report Monday.
The Fed’s “Survey of Household Economics and Decisionmaking,” which has been conducted annually since 2013, showed that the majority of U.S. households were in pretty good shape at the end of 2021, despite the uncertain economy and lingering effects of the pandemic. Thanks to the ongoing recovery and unprecedented federal support, a record 78% of households reported being “doing okay” financially (39%) or “living comfortably” (39%).
“This increase in financial wellbeing aligns with improved economic conditions and the additional COVID-19 relief measures enacted in 2021,” the report says. “Despite persistent concerns that people expressed about the national economy, the survey highlights the positive effects of the recovery on the individual financial circumstances of U.S. families.”
Parental improvement: Parents, in particular, reported a notable improvement in their situation, the Fed says, thanks to the reopening of schools and “additional financial resources provided to parents such as the enhanced child tax credit.” About 75% of parents said they were doing at least OK financially, an eight-point improvement from the year before. Most parents also said that their children were doing better in 2021 than in 2020.
Passing the $400 test: The survey, which involved 11,000 adults and took place in October and November of 2021, asked participants about their ability to handle a $400 emergency expense using cash or equivalent. About 68% said they could meet such an expense, up from the 50% recorded in 2013 and the highest level in the history of the survey. A bit more than 10% said they could not pay such a bill by any means.
An educational divide: Although people at all levels of educational attainment reported better conditions in 2021 relative to 2020, serious differences remain. While 91% of those with at least a bachelor's degree said they were doing OK or better financially, only 49% of those with less than a high school degree said the same — further evidence that the U.S. economy is rewarding different educational groups in very different ways, both before and during the pandemic.
"[L]ooking over the past five years shows a steady and sizeable increase in financial well-being among those with at least a bachelor’s degree (an increase of 9 percentage points in the share doing at least okay from 2016 to 2021), while adults with less than a high school degree have not experienced lasting gains in financial well-being,” the Fed says.
What about inflation? The survey took place before the economy hit a rough patch early this year and inflation continued to climb to recent highs, raising questions about how households have been faring more recently. While Americans are still spending with considerable gusto, with retail spending rising 0.9% in April, soaring prices for gasoline and food may be taking an increasingly painful bite out of household income and savings.
Still, Federal Reserve Chair Jerome Powell has expressed confidence that households can weather any difficulties created by the central bank’s campaign to tighten financial campaigns. “I think we have a good chance to have a soft or softish landing or outcome,” Powell said earlier this month, adding that households “are in very strong financial shape.”
Quote of the Day
“For the longest time, all they talked about was Build Back Better and how it would be this incredible thing. And guess what? It imploded, and now what do we have? Infrastructure?”
— An unnamed political strategist quoted in a piece at The Hill about Democrats’ “fizzling legislative agenda.” While the White House and Democratic lawmakers still hope to pass a slimmed-down version of the bill before the midterm elections, time is quickly running out and Democrats may have no choice but to run in November on the legislation they passed last year. “Between the Recovery Act and the bipartisan infrastructure bill, there are a lot of great policy wins in those bills,” Democratic strategist Rodell Mollineau told The Hill. “We just need to deconstruct it, because most people don’t remember what was accomplished.”
- 12 Asian Nations Join Negotiations on Biden's Signature Economic Initiative for the Region – Politico
- Fizzling Legislative Agenda Leaves Democrats Wondering About Midterms – The Hill
- Fed Will Succeed in Bringing Inflation Down Over Next Couple of Years, Bernanke Says – MarketWatch
- Fed Rate-Hike Pause in September May ‘Make Sense,’ Bostic Says – Bloomberg
- Stiglitz Says Fed Rate Hikes Killing Economy Won’t Fix Inflation – Bloomberg
- U.S. Economy Is in a ‘Period of Transition,’ White House Economic Adviser Says – Politico
- Americans Keep Spending Despite Record Inflation Squeeze – The Hill
- Biden’s Fed Nominees Sworn Into Office – The Hill
- U.S. Military Airlifts Baby Formula From Europe – New York Times
- Frontliners Press Leaders on ACA Time Bomb – Politico
- New Report Highlights the Steep Costs of Climate Inaction – Axios
- One in Three Americans Think Pandemic Is Over – Gallup News
- Pfizer Covid Shot 80 Percent Effective in Younger Kids, Early Data Shows – Washington Post
Views and Analysis
- Why Washington Can’t Have an Honest Debate About Inflation – John Harwood, CNN
- Janet Yellen’s Blunt Talk on Inflation Is Downright Heroic – David von Drehle, Washington Post
- High Gas Prices Are a Problem. But Let’s Not Moralize About It – Peter Coy, New York Times
- How Democrats Can Survive the Midterms – Clive Cook, Bloomberg
- How the Food and Drug Administration Saved Thousands of Lives – De. Arturo Casadevall and Dr. Nigel Paneth, The Hill
- Local Governments Shouldn’t Be Allowed to Ticket Their Way to Wealth – Bill Maurer, Washington Post
- Biden’s Attack on an ‘Ultra-MAGA Agenda’ Is a Mega Blunder – Marc A. Thiessen, Washington Post