Crypto News: Rethinking tariffs on China

Hello. Today we look at the Biden administration's internal debate over whether to remove some tariffs on Chinese imports, fears of rising joblessness in China and the damage done to Germany's trade competitiveness.

It's been a long time coming, but President Joe Biden's team appears to be approaching a decision on what to do with former President Donald Trump's tariff hikes on about $300 billion of Chinese goods.

With a deadline for comment from those affected by the tariffs looming in July, administration officials aim to narrow differences on whether to remove or scale back some of the duties in an effort to rein in inflation.

On the one hand, Biden says inflation is his top priority. He showcased that on Tuesday by meeting with Federal Reserve Chair Jerome Powell in the White House. (The message to the Fed was "go forth and do what you need to do," Cecile Rouse, the top White House economist, told Bloomberg TV.)

So, tariff cuts should naturally be embraced, right?

Not so simple. First, there's debate on how much of an impact the cuts would have. "The devil's in the details," but analysis by the White House Council of Economic Advisers indicates tariff relief could slow inflation by at least a few tenths of a percentage point, "if not more," Rouse said.

That's not a huge amount when the latest reading on consumer prices was an 8.3% surge in April from a year before.

On the other hand, China hawks both inside and outside the administration want to keep the pressure on the US rival even if it hasn't changed Beijing's own economic behavior — or shrunk the trade deficit.

Trade Representative Katherine Tai hasn't given any indication of backing tariff cuts, saying instead the administration must be "strategic." And a bipartisan group of senators wrote the president last week, urging against any such move.

"The tariffs predate the current inflation by over three years," the group, including Senate Banking Committee Chair Sherrod Brown, a Democrat, wrote. Rolling them back would come at the "tremendous strategic cost," they said.

In one sign of where things may be headed, the administration has demonstrated it's not prepared to take on the protectionist lobby even when it is patently in the US strategic interest.

The Indo-Pacific Economic Framework unveiled by Biden during his May visit to Asia as a key plank of Washington's efforts to build ties with Asian partners lacked any significant offer of market opening. China even mocked the diluted initiative.

"It's a delicate decision" on China tariffs, Rouse said diplomatically. The undiplomatic might say it's a political impossibility to back major China tariff cuts.

—Chris Anstey

Got tips or feedback? Email us at ecodaily@bloomberg.net

Fears are growing that joblessness will get worse in China, surpassing even the peak in 2020 when the coronavirus first began spreading. The latest wave of omicron outbreaks and crippling lockdowns in places such as Shanghai have forced companies to cut headcount or reduce wages if they were fortunate enough to stay in business. And a record 10.76 million university students will graduate in 2022 and flood the labor market.

In April, China's jobless rate among 16- to 24-year-olds, a group that includes new college graduates, climbed to a record 18.2%. That's three times as high as the national urban unemployment rate in China, and more than the 7.9% for the same cohort in the US.

The angst of young people is being vented on social media and spilling over into rare protests about Covid control at some universities. Those are tensions the Communist Party would be highly sensitive to as it prepares for a twice-a-decade Congress in the fall, when President Xi Jinping is expected to secure an unprecedented third term as leader.

Read the full story here.

Russia bonanza | Russia is being propelled by a flood of cash that could average $800 million a day this year — and that's just what the commodity superpower is raking in from oil and gas.
Shanghai recovery | Shanghai faces weeks, if not months, of slow recovery until economic activity can fully bounce back from the crippling Covid lockdown that began in March.
Going higher | Europe's planned ban on Russian oil imports and the easing of Covid-19 restrictions in China threaten to add a fresh jolt to surging consumer prices.
Balancing act | The Federal Reserve is about to start shrinking its $8.9 trillion balance sheet, deploying a second tool along side higher interest rates to curb inflation, though officials don't know just how effective it will be
Mea culpa | Treasury Secretary Janet Yellen gave her most direct admission yet that she made an incorrect call last year in predicting that elevated inflation wouldn't pose a continuing problem.
Australia growth | Australia's economy expanded faster than forecast last quarter as households stepped up spending, bolstering the case for an outsized 40-basis-point interest rate hike next week.

Germany for decades rode the tip of the globalization wave, providing high-value-added manufactured items from cheap inputs across the globe. But it's suffering a major blow to its trade competitiveness, Nick Andrews, an analyst at Gavekal Research, writes.

While pretty much everyone has seen factory-gate costs surge lately, Germany's are off the charts, and this could end up damaging its longer-term competitiveness.

Producer prices soared over 33% in April at an annual rate, against 11% for the US and 8% for China. And it's not all just due to costlier Russian gas, with a 16.3% jump in the index excluding energy, Gavekal says.

"The longer high input prices persist, the greater the pass-through to consumer prices will be," spurring pressure on employers to boost wages rapidly — something that's already evident in pay demands, Andrews says. "Germany's manufacturing economy has long been a king of competitiveness. Now its crown is beginning to slip."

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