Yesterday, the U.S. and China discussed their relationship and global challenges. Specifically, U.S. Treasury Secretary Janet Yellen talked with China’s Vice Premier Liu He over the phone in a “substantive conversation.” The talks were initiated by the U.S. In addition, the Chinese government described the conversation as “constructive” and “pragmatic.”
Both countries agreed that the world is facing significant economic challenges. The call also placed emphasis on improved policy coordination. While the U.S. readout of the conversation did not explicitly mention tariffs or sanctions, several financial media firms reported that President Joe Biden may announce a rollback of some tariffs on Chinese goods as soon as this week. Let’s get into the details.
Biden Could Potentially Ease Tariffs on China
Bloomberg reports that Biden has not yet come to a final decision on whether to ease tariffs. The tariffs on $350 billion of Chinese imports were established during the Trump presidency in light of the trade war. However, with inflation at 40-year highs, easing these tariffs could provide consumers and businesses with some relief. With fewer tariffs, consumers may be more incentivized to purchase goods. The businesses selling these goods may benefit as well from increased demand.
Still, the benefits of easing these tariffs remain uncertain. CNN reports that tariffs placed on Chinese goods have only “marginally contributed” to U.S. inflation. These goods include retail items such as bicycles, baseball bats and shoes. As a result, it seems that retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT) stand to gain from a reduction in tariffs.
However, the easing of tariffs could still indirectly lower inflation. If importers lower their prices due to reduced tariffs, their competitors may need to lower their prices as well. Peterson Institute for International Economics Senior Fellow Gary Hufbauer believes that the indirect effects of reduced tariffs will be “much larger” than the direct effects. He adds that the lower prices could take up to a year to reflect for consumers.
Meanwhile, the November mid-term elections are just a few months away. As a result, the Biden administration is incentivized to lower inflation as soon as possible in order to gain party support. Mizuho Bank strategist Ken Cheung believes that a reduction of Chinese tariffs is just “around the corner.”
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.