Biden’s new tariffs show he’s willing to play hardball as China ramps up exports, Nobel economist Paul Krugman says

US President Joe Biden (R) and China’s President Xi Jinping (L) meet on the sidelines of the G20 Summit in Nusa Dua on the Indonesian resort island of Bali on November 14, 2022.

SAUL LOEB/AFP via Getty Images

Biden’s tariffs on China are a gesture to show the US will not accept another wave of Chinese imports, Paul Krugman wrote in an op-ed.
The previous “China shock” was damaging to US employment, given the localized nature of US industry.
China is relying on heavy production to manufacture its way out of an economic slump.

President Biden’s fresh set of China tariffs are a signal to show that the US will not absorb another flood of Chinese products, top economist Paul Krugman wrote for The New York Times.

“Biden’s moves are more than a symbolic gesture,” the Nobel-prize winner said Tuesday. “They’re a shot across the bow — a signal that the United States won’t accept a second so-called China shock, a surge of imports that could undermine crucial parts of the administration’s agenda.”

The administration’s recently announced tariffs target $18 billion worth of Chinese goods, taking aim at products from solar cells to semiconductors. To protect the US auto industry, these measures go as far as a 100% tax on electric vehicle imports.

It’s all to avoid a reiteration of the trade imbalance that cropped up in the 1990s, when massive inflows of cheap manufactured goods from China eroded US employment through the next decades, Krugman explained. 

By one estimate, 1.5 million jobs were eliminated between 1990 and 2007, he cited. While this isn’t much in the grand scheme of the US economy, those job losses were highly localized and wreaked havoc on individual communities.

Now, a second China shock is mounting as Beijing looks to escape domestic economic turmoil, Krugman wrote.  

While the original shock was a sign of the country’s strength, today, sending products abroad is a sign of low domestic demand and a lack of sustainable investing. 

“China was able to mask these problems for a while with a huge housing bubble and a bloated real estate sector, but that game appears to be up,” Krugman wrote, referencing the massive property market fallout that’s sent Chinese developers into default.

To the economist, a simple solution would be to provide households with more income, boosting domestic demand. But Krugman notes that Chinese leadership remains inexplicably averse to direct payments to consumers, which he’s previously explained as an ideological dislike for welfare and stimulus.

Instead, the country remains focused on boosting advanced manufacturing and unloading the product onto the global market. Other analysts have similarly warned that this is likely to spur protectionism, and could eventually lead to a trade war. 

“What the Biden administration is basically saying is: No, you don’t get to do that. You’re too big a player in the world economy to dump the results of your policy failures in other countries’ laps,” Krugman wrote.