Joe Biden needs to do more than lifting tariffs

President Joe Biden finally plans to ease some of the tariffs on Chinese goods put in place by his predecessor — which is the right policy. But the president will have to do more if he wants to keep inflation low in the post-Covid economy. The administration needs a complete reversal of its trade policy: Stop promoting demand for US-made products, and start seeking out the lowest-priced goods from around the world.
That will require investments in long-term partnerships in Latin America, Southeast Asia and West Africa. It will require stripping out “Buy America” provisions from federal contracts. It will require, in short, a complete reordering of US trade priorities — from protecting US producers to advocating for US consumers.
Under such an approach, unilateral free trade with US allies would be the norm. For example, the administration could slash all tariffs and trade barriers with Japan — and then, using soft power, seek to get Japan to reciprocate. That might leave the US with less leverage to defend its own exporting industries, but it would also lead to greater and more widespread savings for US consumers. In an era when inflation is far and
away the biggest economic threat, holding down consumer prices has to be Job No. 1.
The problem with unilaterally lifting tariffs is that, over the last six years, Washington has experienced a radical bipartisan shift against free trade. On the right, that move was led by Donald Trump, who used the issue to help him trounce the Republican Party establishment in 2016. On the Democratic side, the Biden campaign’s economic policy agenda, released in 2020, was a collection of policies designed to shore up the Midwestern vote.
In fairness, these shifts were not just political, they were part of a long-overdue reckoning. For decades, economists from both sides of the aisle were united in their support for free trade and dismissed arguments it threatened US job growth. Even Paul Krugman, who received a Nobel Prize for work showing that tariffs can sometimes be beneficial, denounced trade restrictions.
Ironically, economists succeeded in forging a bipartisan consensus in favour of free trade just as the conditions necessary to support their argument were coming apart. The rapid growth in the Chinese export economy in the first decade of the 21st century delivered lower prices for consumers and freed up cash that could be spent on other things.
The theory was that this extra spending would create new jobs for the workers that were being laid off in the manufacturing industry. But the pace of change — since dubbed the China Shock — was so rapid that the job market could not keep up. Job losses piled up in the heartland while demand for new workers surged on the coasts, where much of the newly available cash was being spent on personal services.
Many workers were too old to move, and those that did encountered a shortage of housing and rapidly rising rents. These two effects — a rapidly collapsing demand for workers in the industrial Midwest and a shortage of housing on the coasts — trapped less educated but formerly middle-class workers in a nearly 20-year period of stagnant real wages and persistent underemployment.
Then, just as the aftereffects of the China Shock were wearing off, Covid hit. The demand for services collapsed, demand for manufactured goods exploded, and demand for warehouse and distribution workers climbed faster than at any point in US history. The very same workers that had been hit hardest by the China Shock were now in great demand.

—Bloomberg