Finance Minister Janet Yellen said the Biden administration is considering ways to change tariffs on imports from China as a way to help ease inflation that has reached record levels.
Yellen, speaking at a House Roads and Means Committee hearing on Wednesday, said she expects the administration to have more information about its plans in the coming weeks, though it has not set a clear deadline for that.
“I think there may be room for some reductions,” Yellen said in relation to import taxes, adding that it could help bring prices down. Tariffs have been imposed on certain items imported from China during the Trump administration.
At the hearing, Yellen defended the international tax deal she discussed with her counterparts around the world and said she was confident that Poland – a country that had meanwhile refrained from joining the agreement – would eventually join it.
Yellen told lawmakers that while some tariffs were important for protecting U.S. national security, the cost of some tariffs against China eventually rolled to Americans. When taxes were imposed, before the epidemic, inflation was close to 2%.
Economists expect new inflation data, released on Friday, to show that the annual inflation rate remains 8.3% in May, close to a 40-year high. The rise in fuel prices, food products and others has hurt the perception of many Americans about the economy ahead of the midterm elections, even though unemployment is low.
The Biden administration is divided over whether to cut taxes on imports from China to save costs for consumers and reduce inflation. The administration is re-examining the Trump-era taxes that are legally required. Tariff relief can take the form of expanding the list of tax-exempt products.
This is something that is being actively considered, Yellen said. Still, she said she believes the tariff policy will not be a panacea for inflation because goods are only a third of U.S. consumption. Most consumer spending is done on services like restaurant dining, education or health care.
Within the Biden administration, Yellen and Trade Minister Gina Raimondo have pushed for tariff easing as a way to fight inflation, while other officials, including US Trade Representative Catherine Tai, want to keep them to keep up the pressure on China.
“All options are on the table in terms of how we deal with our economic needs in the short term but our eye needs to be on the goal regarding the medium and long term ranges for the US to re-adjust its trade and economic relations system” with China, Tai said in a recent interview with Bloomberg .
At Wednesday’s hearing, Yellen also answered questions from lawmakers about the administration’s broader response to inflation. The U.S. national average gallon of regular fuel stood at a record $ 4.95 on Wednesday, according to the AAA Drivers Association.
Yellen said Russia’s war on Ukraine is raising world fuel prices and affecting food supplies. “Almost all developed countries see higher inflation,” she said. “It’s not something we only experience and of course a big part of it is the rise in energy and food prices.”
Republicans have blamed Democrats for inflation, arguing that the Corona aid package led by the Biden administration in early 2021 has overheated the economy. Many economists see various reasons for the high inflation, which is mainly driven by an economy that is recovering rapidly in the last year and is facing a shortage of raw materials and workers.
Regarding the international tax agreement that Yellen discusses with her counterparts around the world, she said: “We have talked to Poland and I very much hope that Poland will soon decide that it is in their interest to agree to it.” The Polish opposition prevented the EU from advancing the details of the agreement on a minimum corporate tax of 15%, which more than 130 countries agreed on last year.
Implementation of the tax treaty is also delayed in the U.S. It is part of a broader economic priority of the Biden administration, stuck in the Senate because of opposition from Sen. Joe Manchin (a Democrat from West Virginia), regarding the composition and scope of health, change plans Climate and social goals in the bill.
“Our calculations show that the impact will probably be small”
The Democrats for the most part support the corporation tax agreement and will probably have all the fingers needed to vote on it but it is related to other issues that are still debated. Talks between Democrats in the Senate have not yet yielded agreement.
Without the EU and the US, the global minimum tax agreement would be in danger of collapsing.
Yellen stressed that the minimum tax could be better with American companies compared to their competitors in other countries, because the US is the only country that already imposes a minimum tax – 10.5% – on the foreign profits of American companies. But the Democrats’ version is supposed to be more expansive and relevant to all countries, thus eliminating any advantage it has had to date to the list of business profits in countries that are considered tax havens.
House of Representatives Kevin Brady (a Republican from Texas), a senior Republican on the committee, pressed Yellen over the second part of the international tax treaty, the part that allows states with an extensive customer base to expand their corporate tax rights. Under a multilateral agreement currently under discussion, some of these taxing powers will be transferred from the countries in which the companies’ offices, factories and intellectual property are located.
Brady asked if the administration intended to withdraw from any agreement that would reduce U.S. revenue.
Yellen refrained from answering him directly, but noted that a full analysis of the revenue impact could not be made before negotiations on this part of the agreement were completed.
“Our calculations show that the impact is likely to be small, in any case, whether positive or negative,” she said.
Andrew Duhren participated in the preparation of the article.