WASHINGTON — The Biden administration faces a midnight legal deadline to defend former President Donald Trump’s China tariffs, even as the White House plans to cut them to lower consumer prices and ease the inflation.
Dozens of companies sued the Trump administration in September 2020, arguing that the process of implementing a third and fourth round of tariffs on approximately $350 billion in goods was too broad and implemented at haste. If the Biden administration, having inherited the lawsuit, cannot prove the legitimacy of the tariffs or the process, it could be forced to re-evaluate tens of thousands of public comments on tax penalties, or reimburse the parties for what they paid.
“The stakes are high,” says Alex Schaefer, international business partner at Crowell, which represents some of the importers. Schaefer says the government is understaffed to process the volume of comments and refunding importers could cost $80 billion.
The Office of the US Trade Representative declined to comment. The Justice Department, which represents the administration in court cases, declined to comment on the government’s position, but said it could be some time before there is a final outcome.
The delay puts the White House in an awkward position: potentially defending its predecessor’s agenda, while exploring ways to modify it. John Kirby, spokesman for the National Security Council, recently called the tariffs “ill-conceived,” “a shoddy deal” that “raised costs for American families.”
President Joe Biden has yet to make a decision on the options his advisers have presented on tariffs, according to senior administration officials. Officials and people familiar with the matter have suggested some fault lines are forming in the political debate, with political aides advising Biden to keep the levies in place to avoid attacks across the aisle.
Ambassador Katherine Tai, who as U.S. Trade Representative holds the lead on tariffs, suggested Trump’s tariffs have strategic value in maintaining leverage in negotiations with China. The economics team, led by Treasury Secretary Janet Yellen, has advocated cutting at least some of the tariffs that hit consumers directly to dampen inflation, according to administration officials who asked not to be identified. because the discussions are private.
The economic impact on inflation is difficult to estimate since not all imports affected by tariffs are consumer goods, and not all cost savings realized by importers at ports of entry would be felt by consumers at checkout. JP Morgan Chase analysts estimated that if retailers left prices relatively unchanged, removing all tariffs would reduce inflation by no more than 0.4%.
In mid-June, White House aides confirmed they had asked retail executives, who have long pushed for relief on items such as bikes, furniture and air conditioners, if the relief tariff would be passed on to consumers. According to three people briefed on the meetings, retailers told the administration that the math was not so simple because their businesses’ transportation and labor costs had also risen dramatically.
The National Security Council has backed a third option in the tariffs discussion — scrapping a subset of tariffs while launching a new probe into China’s industrial subsidies, an idea that appears to be gaining traction, officials say. administration.
“There is no doubt that as we reorient our policy with China, we will have to strengthen our range of trade tools in the sectors and in the areas where you see the clearest threat from practices managed by the Chinese state,” another senior administration official said. CNBC, while noting that all options remain on the table.
It remains unclear when Biden will make a decision and whether China would be prepared to respond in kind if the United States removed some of the tariffs. Foreign policy experts have suggested that pairing tariff relief with an increasingly intense investigation could anger Beijing as the two countries work towards a face-to-face meeting between Biden and Xi Jinping, the Chinese president.
The frosty relations and rhetoric between the two countries amid recent tensions may require some distance.
“Modest tariff relief is still likely,” says Clete Willems, an Akin Gump partner who served as deputy director of Trump’s National Economic Council when the tariffs were rolled out. “But the administration may want to back away from Xi’s call and (House Speaker Nancy) Pelosi’s trip to Taiwan for domestic and international political reasons.”
But if the US government loses in the Court of International Trade, these political winds could push the Biden administration to strengthen its hand against China.
“If all of a sudden tariffs are functionally cut in half,” Schaefer says, “that may magnify the need to process this new case as quickly as possible.”