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While trade policy could tame inflation, it’s no silver bullet

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An American and Chinese flag are seen side-by-side on flagpoles during a sunny day.

A measure being considered in Congress proposes establishing a mechanism to review, and possibly restrict, some American companies from investing in China. cbarnesphotography/Getty Images

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President Biden told reporters in Asia on Monday that he’ll meet with Treasury Secretary Janet Yellen to talk about how to handle tariffs imposed on China by the Trump administration.

Yellen wants to reduce at least some of the tariffs to lower inflation. For the most part, those taxes on imports end up being passed on to the consumer.

Michael Brey, president of Hobby Works toy stores in suburban Maryland, is wrestling with a monster: inflation. Brey said 80% to 90% of the toys he sells are at least partly from China. The tariffs former President Donald Trump imposed on some Chinese imports are pushing up his prices.

“The tariffs are one element of a three-headed monster that’s driving inflation right now,” Brey said, referring to supply chain kinks and soaring shipping costs.

Brey added that he would pass the savings along if at least some of the tariffs went away.

Were the U.S. to lift all of the tariffs on Chinese imports, Gary Hufbauer at the Peterson Institute for International Economics estimates that overall inflation would fall by about a percentage point. 

“And you take off the tariffs and it immediately goes to lower prices, that’s a very quick effect,” he said.

In an interview with “Marketplace” host Kai Ryssdal, the U.S. Trade Representative Katherine Tai said Haufbauer’s assumed world of zero tariffs was not realistic. Haufbauer said the U.S. could use other parts of trade policy to dampen inflation, like lifting quotas on steel from our allies or easing duties on Canadian lumber. 

These would all be good options for the Biden administration, according to Jennifer Hillman, a former U.S. trade negotiator now at Georgetown Law Center.

“If they could strategically reduce these tariffs that are not really serving a different and important strategic purpose for the United States, it would make a small but, I think, meaningful contribution to reducing inflation.”

It would still probably take months to reduce inflation, Hillman said.

Back at the toy store, Michael Brey would like the Biden administration to act soon so that lower prices could make their way to consumers — in time for the all-important holiday shopping season.

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