Biden administration, CCP Virus, China, coronavirus, COVID 19, currency, currency manipulation, exports, Our So-Called Foreign Policy, tariffs, Trade, Trump administration, unemployment, Xi JInPing, yuan, Zero Covid
If the old adage is right and “timing is everything,” or even if it’s simply really important, then it’s clear from recent news out of China that the Biden administration’s public flirtation with cutting tariffs on U.S. imports from the People’s Republic is terribly timed.
The tariff-cutting hints have two sources. First, and worst, as I noted two weeks ago, two top Biden aides have publicly stated that the administration is considering reducing levies on Chinese-made goods they call non-strategic in order to cut inflation. As I explained, the idea that the specific cuts they floated can significantly slow inflation is laughable, and their definition of “non-strategic” could not be more off-base.
The second source is a review of the Trump administration China tariffs that’s required by law because the statute that authorizes their imposition limited their lifespan. The administration can choose to extend them, eliminate them entirely, reduce all of them, or take either or both of those actions selectively, Some tinkering around the edges may justified – for example, because certain industries simply can’t find any or available substitutes from someplace else. But more sweeping cuts or removals could signal a stealth tariff rollback campaign that would be just as ill-advised and ill-timed.
And why, specifically, ill-timed? Because this talk is taking place just as the Chinese economy is experiencing major stresses, and freer access to the U.S. market would give the hostile, aggressive dictatorship in Beijing a badly needed lifeline.
For example, China just reported that its goods exports rose in April at their lowest annual rate (3.9 percent) since June, 2020. Exports have always been a leading engine of Chinese economic expansion and their importance will likely increase as the regime struggles to deflate a massive property bubble that had become a major pillar of growth itself.
It’s true that dictator Xi Jinping’s wildly over-the-top Zero Covid policy, which has locked down or severely restricted the operations of much of China’s economy, deserve much of the blame. But Xi has recently doubled down on this anti-CCP Virus strategy, and low quality Chinese-made vaccines virtually ensure that case numbers will be surging. So don’t expect a significant export rebound anytime soon without some kind of external helping hand (like a Biden cave-in on tariffs).
Indeed, China seems so worried about the export slowdown that it’s resumed its practice of devaluing its currency to achieve trade advantages. All else equal, a weaker yuan makes Made in China products more competitively priced than U.S. and other foreign counterparts, for reasons having nothing to do with free trade or free markets.
And since March 1, China – which every day determines a “midpoint” around which its yuan and the dollar can trade in a very limited range (as opposed to most other major economies, which allow their currencies to trade freely) – has forced down the yuan’s value versus the greenback by an enormous 6.54 percent. The result is the cheapest yuan since early November 3, 2020.
It’s been widely observed that such currency manipulation policies can be a double-edged sword, as they by definition raise the cost of imports still needed by the Chinese manufacturing base. But the rapidly weakening yuan shows that this is a price that Beijing is willing to pay.
Finally, for anyone doubting China’s need to maintain adequate levels of growth by stimulating exports, this past weekend, the country’ second-ranking leader called the current Chinese employment situation “complicated and grave.” His worries, moreover, aren’t simply economic. As CNN‘s Laura He reminded yesterday, Beijing is “particularly concerned about the risk of mass unemployment, which would shake the legitimacy of the Communist Party.”
For years, I’ve been part of a chorus of China policy critics urging Washington to stop “feeding the beast” with trade and broader economic policies that for decades have immensely increased China’s wealth, improved its technology prowess, and consequently strengthened its military power and potential. The clouds now gathering over China’s economy mustn’t lead to complacency and any easing of current American tariff, tech sanctions, or export control pressures. Instead, they’re all the more reason to keep the vise on this dangerous adversary and even tighten it at every sensible opportunity.