Biden To Announce Tariff Hikes On Chinese Steel, Aluminum Imports: Another 'Hit To Real Income And Consumer Spending,' Economist Cautions

On Wednesday, President Joe Biden is set to propose a significant adjustment in the nation’s trade policy towards China, aimed at strengthening the domestic steel sector and addressing broader industrial concerns.

In a visit to Pittsburgh, Biden is expected to announce new 25% tariffs on specific Chinese steel and aluminum imports and initiate a comprehensive investigation into China’s shipbuilding practices.

This move is part of an effort to protect American manufacturing jobs and counteract what the administration views as unfair trade practices related to China’s industrial expansion, as Bloomberg reported Wednesday.

Biden will also emphasize the importance of keeping United States Steel Corp. X under American control, countering potential foreign acquisitions.

Detailed Actions and Economic Implications

The proposal includes elevating Section 301 tariffs on a variety of Chinese steel and aluminum items, which currently attract lower tariffs of 0% or 7.5%, to the uniform rate of 25%. Products already under a 25% tariff will see no change in their rates.

This decision will ultimately be determined by U.S. Trade Representative Katherine Tai, following a comprehensive review of existing tariff policies.

Targeting a Narrow Market Segment

Although Chinese steel and aluminum imports represent a small fraction of the U.S. market, totaling approximately $1.7 billion in 2023, these measures aim to preempt a surge in these imports and protect U.S. producers from unfair competitive pressures.

The goal of these measures is to shield American manufacturing investments and jobs from China’s industrial excesses, as Lael Brainard, director of the National Economic Council, explained.

In addition to metal tariffs, Biden’s administration is set to review China's extensive activities in the maritime, logistics, and shipbuilding sectors. This investigation seeks to understand and counteract China’s aggressive interventions in these areas, potentially paving the way for future policy actions.

Another strategic move includes collaborating with Mexico to prevent Chinese steel from entering the U.S. market indirectly. While the possibility of imposing tariffs on Mexican imports was not disclosed, the focus remains on finding a bilateral solution to this trade challenge.

Negative economic effects of trade tariffs

Ronnie Walker, an economist at Goldman Sachs, has highlighted how past tariffs have led to noticeable increases in consumer prices in the sectors targeted by these tariffs.

“Studies found that tariffs also enabled domestic producers to opportunistically raise their prices,” Walker said.

By comparing the prices of a basket of tariff-impacted goods with other core goods, Goldman Sachs demonstrated the clear inflationary effects of such policies implemented during the US-China trade war.

“The direct impact of higher tariffs on GDP is likely to be modestly negative, with the hit to real income and consumer spending from higher prices outweighing the decline in the trade deficit, especially if other countries retaliate,” Walker wrote.

Specifically, Goldman Sachs estimates that every 1 percentage point increase in effective tariff rates could reduce GDP by 0.13% if no retaliation occurs, and by 0.15% with retaliation.

“Tariff increases could meaningfully boost government revenues. In 2023, the US imported $3.1tn worth of goods, meaning that every 1pp increase in the effective tariff rate could raise over $30bn per year (or 0.1% of GDP),” he added.

Walker also stresses that during the US-China trade war, numerous exclusions were granted—over 2,000—which allowed certain imports to avoid tariffs by being sourced from other countries.

This kind of strategic trade rerouting helps mitigate the impact of tariffs but also underscores the complexity of enforcing such trade barriers effectively.

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