Inflation is, by far, President Biden’s gravest problem. It is eating up the wage gains thrown off by the hot labor market and forcing the Federal Reserve to risk triggering a recession by raising interest rates. It is the main cause of his anemic approval ratings and the terrifyingly high probability that a dangerously authoritarian Republican Party will win the 2024 election.
There isn’t a button Biden can push to make the whole problem go away. But there is a button he can push to make some of the problem go away. The mystery is why he hasn’t pushed it.
That button is to rescind the tariffs imposed by his predecessor, which were created by executive order, and could be reversed the same way.
Donald Trump started a trade war with various countries he didn’t like for various reasons. Some of Trump’s hostility to various countries had a solid basis (China has long stolen American intellectual property) and others did not (he seems to favor countries that enriched him personally).
Biden campaigned against the Trump tariffs as a tax on the middle class. Once in office, he held off on rescinding them. His reason for hesitating was not crazy. Biden recognized that Trump’s opposition to trade had helped him in the Midwest, and he wanted to position his party as an ally of the industrial Midwest rather than as an automatic ally of free trade.
Tariffs raise prices for consumers in a bid to protect domestic industry. In an era during which inflation had run chronically below the Fed’s target, and working-class wages had stagnated, it made some sense for Biden to pay that cost.
But those circumstances have changed dramatically. There are plenty of jobs available for American workers of all skill levels, but prices are rising at levels not seen in decades.
One recent study finds that rescinding the Trump tariffs would reduce prices 1.3 percent. With inflation currently running over 8 percent, that would hardly resolve the crisis, but it would do more to alleviate it than any other step Biden could take on his own.
Possibly the most perverse aspect of the administration’s trade war is its continuing tariffs on solar panels. The purpose of these tariffs is, of course, to encourage the growth of the domestic solar industry. But it has raised the cost of solar panels, depressing investment in solar by 11 percent (according to a trade group) without having produced any measurable domestic production. Rescinding those tariffs would simultaneously put downward pressure on prices and accelerate the green-energy transition.
So why has Biden held off? Hans Nichols reported recently that the administration is split between its economic advisers and China hawks at the National Security Council, who believe Trump’s tariffs on China give them leverage to force concessions. Those concessions have yet to materialize, and in the meantime, inflation is killing Biden. Nichols also reports that, when one Biden official floated a partial tariff exemption, some labor officials objected.
One grim lesson from this episode is that even in realms where the president can act freely without having to navigate Congress, other political considerations can freeze the process. There are interest groups to consider, some of which benefit from the status quo. And there are intraparty factional fights — in this case, a pro-labor faction that has only recently regained the upper hand from free traders and is loath to relinquish it due to a temporary emergency.
In the meantime, Biden is staring directly at a crisis that may well turn his administration into a one-term failure. At this point, using all the tools at his disposal may not be enough. But it would be unforgivable not to try.