Biden considers lifting tariffs imposed during the Trump administration to curb inflation. This is how the measure could affect you

How to counteract the inflation that affects the US?

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Washington (CNN) --

Lifting Trump-era tariffs is one of the few things President Joe Biden could do to curb inflation, but that doesn't mean Americans would immediately notice a drop in prices if he took such a step.

Biden has so far resisted pressure from many in the American business community to lift the tariffs his predecessor imposed on a host of Chinese goods, including $350 billion worth of bicycles, baseball caps and sports shoes during an tit-for-tat trade war.

But with inflation still a major annoyance to the president, or "a nightmare" as Biden recently described it, he has said his administration is considering lifting the tariffs.

A White House official said earlier this month that a decision would be announced in the "coming weeks."

• ANALYSIS |

  Why inflation is so painful for Americans and a political nightmare for Biden

A truck drives past stacks of shipping containers at the Port of Oakland, California, on May 20, 2022.

It is not an easy decision and advisers within the administration have not reached a consensus on lifting the tariffs.

For one thing, China has not followed through on purchase commitments it made under the Trump administration, and parts of US industry are struggling to compete with China's unfair trade practices.

On the other hand, Biden is eager to take any steps that he shows he is fighting high prices.

He could decide to lift some tariffs and leave others in place.

"Some reductions may be warranted," Treasury Secretary Janet Yellen told lawmakers during testimony before Congress earlier this month.

But she also pointed out that the shock to prices would not solve the problem of inflation in the United States.

"I want to make it clear that I honestly do not believe that tariff policy is a panacea with respect to inflation," he added.

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One of Biden's few tools to deal with inflation

Biden doesn't have many tools he can use to deal with inflation.

But he does have the authority to lift the tariffs that were imposed on Chinese-made products during the Trump administration.

"It's something the president can really do on his own to bring down prices. No one has ever said it's a panacea, but compared to other things the president can do, this is pretty relevant," said Gary Hufbauer, senior fellow resident of the Peterson Institute for International Economics.

"What is certainly not a panacea is railing against refiners for abusive prices. It may be a great headline, but it's really inconsequential," Hufbauer said.

Last week, Biden chastised oil companies for making huge profit margins at a time when families are facing record prices.

He has also attacked shipping companies for jacking up prices and signed a bipartisan law that seeks to improve shipping oversight and makes changes that supporters say will ease inflation and reduce export delays.

Earlier this year, Biden approved the release of an unprecedented amount of oil from US stockpiles to deal with rising energy and gasoline prices, but the gallon of regular gasoline recently hit a record low. national average of US$ 5 for the first time.

Maintaining price stability is largely the job of the Federal Reserve, which it can do through increases in interest rates.

Last week, the central bank aggressively imposed its biggest rate hike since 1994.

How lifting tariffs could lower consumer prices

The lifting of tariffs could curb inflation in two ways.

The first is the direct and immediate impact on US importers.

Companies importing goods from China would no longer have to pay the tariffs when the items arrive at the US border.

The Trump-era tariffs imposed a 25% rate on most affected goods, including baseball caps and bicycles, in addition to a 7.5% rate on some other goods such as shoes.

Importers often pass on the cost of tariffs to consumers.

But the Chinese imports affected by the Trump-era tariffs do not represent a huge part of the US economy.

Those tariffs have only marginally contributed to inflation at the national level.

The second way that lifting tariffs could curb inflation is more indirect.

If importers lower their prices because they no longer have to pay the tariffs, domestic competitors may have to lower their prices as well in order to compete.

This indirect effect is much larger than the direct one, but it could take a year to really lower prices for consumers, according to Hufbauer.

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But the price consumers pay for such imported products may not drop immediately, especially if the item is a component of a domestically-made product.

Some companies may choose to lower their prices once the tariffs are lifted, but others may choose to keep prices the same.

Phil Page, president of Cap America, said the company raised prices shortly after the tariffs went into effect, and the tariffs "are already built into the prices."

Cap America embroiders baseball caps, which it mostly imports from China.

Page is not sure if he would lower prices if Biden lifted the tariffs.

"It depends a lot on the competitor. Once you get a higher price, it's hard to lower it unless the competition forces you to," Page said.

Matt Priest, president of Footwear Distributors and Retailers of America, a trade association for shoe distributors and sellers, hopes retailers will have two options if Biden lifts the tariffs: cut prices or keep them where they are.

"Every retailer is different, every relationship between vendors and brands is different. But at a minimum, I think we would see prices level out," Priest added.

For Rick Muskat, president of shoe importer Deer Stags, the tariffs have not helped curb his reliance on China.

Even with the tariffs, shoes made in China are still cheaper than those he has tried to import from elsewhere.

He raised prices when the tariffs went into effect.

"These tariffs only hurt American consumers," Muskat said.

Will consumers notice a difference in prices?

Inflation rose 8.6% in the year to May, the biggest jump in prices experienced by consumers since 1981. According to Mark Zandi, chief economist at Moody's Analytics, a typical American household spends about $460 more each month. than last year to purchase the same goods and services.

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The increase is largely driven by record gasoline prices, which are up almost 50% compared to a year ago, and food prices, which are up almost 12%, products not typically imported from China.

If Biden were to lift Trump-era tariffs on Chinese goods and lower some other trade barriers the United States has, including tariffs on foreign steel and Canadian lumber, those actions would eventually lead to a 1.3 percentage point reduction. in inflation, according to a policy brief contributed by Hufbauer for the Peterson Institute for International Economics.

That kind of reduction could save the average household $797 a year, according to the report.

Biden must also consider the political risk of lifting the tariffs, which are supported by some import industries.

"Canceling these tariffs would create an even more unhealthy dependency on Chinese supply chains and open up future systematic trade abuses, as bad actors know the US will not hold them accountable," three manufacturing trade groups recently wrote. of textiles in a formal comment submitted to the office of the US Trade Representative in support of keeping the tariffs in place.

US inflation tariffs