One of the decisions facing the Biden administration is whether to perpetuate unprecedented levels of tariffs imposed by President Trump. These import taxes, the bulk of which apply to goods from China, have cost the average American household $704 and have dulled the positive effects of tax reductions and regulatory reforms pursued by the Trump administration. Rolling back these costly tariffs would provide a much-needed boost to the economy as we attempt to rebound from the global pandemic.
President Biden has pledged not to take any immediate action on tariffs, presumably in part for fear that removing them would subject him to accusations of being “soft” on China. When President Reagan first took office, he faced a similar dilemma. Reagan had promised to end the Soviet grain embargo, which had been imposed by President Carter after the Soviet Union invaded Afghanistan. Although Reagan had promised to end the embargo, hawks in his administration and in Congress encouraged him to reconsider. Secretary of State Alexander Haig argued lifting the embargo would “give the Soviets the concession they want most.”
Reagan, like Biden, decided against taking immediate action, saying, “In the first few weeks of my Presidency, I decided that an immediate lifting of the sales limitation could be misinterpreted by the Soviet Union. I therefore felt that my decision should be made only when it was clear that the Soviets and other nations would not mistakenly think it indicated a weakening of our position.”
On April 24, he terminated the embargo.
There are many parallels between the Soviet grain embargo and Trump’s China tariffs. Reagan believed the embargo was ineffective and that it unfairly burdened American farmers: “As I say, it was asking one group of Americans to bear the burden and, I have always thought, was more of a kind of gesture than it was something real.”
Similarly, U.S. farmers bore the brunt of Trump’s China tariffs. Although the administration infamously stated that China would not retaliate against U.S. tariffs, China instead imposed tariffs on a broad range of U.S. exports, led by agricultural goods. In two short years, agricultural exports to China were cut in half, including a 78 percent drop in soybean exports.
The fallout from the trade war left farmers increasingly dependent on government support. In 2015, before Trump took office, federal payments accounted for just over 10 percent of net farm income. The Department of Agriculture estimates government payments will account for a whopping 39 percent of net farm income for 2020. Though the United States and China signed a “phase one” trade deal that contained ambitious commitments for China to buy more U.S. exports, the results have been dismal. Even before the COVID pandemic hit, trade experts doubted China would be able to meet its ambitious purchasing goals, and they wound up falling 42 percent short of meeting their purchase commitments in 2020.
Hawks like Alexander Haig urged Reagan to maintain the ineffective grain embargo to maintain leverage against the Soviet Union. Today, China hawks like Robert Lighthizer, Trump’s U.S. Trade Representative, are urging Biden to maintain tariffs to provide leverage against China. As one former Trump trade negotiator put it, “Whether you love the tariffs or hate the tariffs, they have created leverage for the United States.” Unfortunately, Trump’s tariffs have been both costly and ineffective. In addition to failing to liberate its economy, China has run roughshod over Hong Kongers and Uyghurs, ramping up its territorial aggression and its deplorable treatment of religious minorities as it takes a more confrontational approach on the regional and global stage.
Reagan campaigned on a promise to end the grain embargo. Biden’s position on tariffs was less definitive, but while campaigning in Iowa he said: “Any beginning econ student at Iowa or Iowa State could tell you the American people are paying his (Trump’s) tariffs.” After securing the nomination, when asked whether he would keep the tariffs, he replied: “No. Hey, look, who said Trump’s idea’s a good one?” And during the vice presidential debate, Kamala Harris told Vice President Mike Pence: “You lost that trade war.”
In this case, the new president and vice president should trust their instincts. Ten years after Reagan overruled his administration’s hawks and ended the grain embargo, the Soviet Union collapsed. As with the grain embargo, the impact of tariffs on China is largely symbolic but the costs imposed on Americans are real. Biden should follow Reagan’s example and terminate the tariffs.
Photo courtesy of Ronald Reagan Library, National Archives and Records Administration.