BoA Analysts Say More Section 301 Tariff Exclusions, More Sanctions on China Likely
Sanctions, rather than additional tariffs, are the most likely result of political pressure to not look soft on China, Bank of America analysts Ethan Harris and Aditya Bhave predicted. The two wrote in a Feb. 18 note that it's not surprising that China did not purchase the volume of U.S. exports it promised, but "what's unusual is the lack of follow-through from either side so far, other than empty rhetoric."
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"We believe the US is unlikely to hike tariffs further on China, as this approach was not only ineffective in reducing US trade deficits, but also harmful to the goal of anchoring US CPI inflation. Even if some Chinese exporters were pressurized to cut prices to absorb part of the tariff shock at the beginning of the trade war, it is hard to believe they haven't hiked prices back by now given the strong US demand and supply constraints," they wrote.
The probability of new sanctions is rising, they predicted, and said the U.S. is seeking to contain China's ability to innovate in technology. "We expect the US-China bilateral trade talks to remain in deadlock in the near term. The two sides clearly have other priorities in 2022 -- for China, dealing with its current economic wobbles ahead of the 20th CPC National Congress in the fall; and for the US, the midterm elections. Against the political backdrop, neither side has any appetite for conceding or even appearing 'soft,'" they wrote.
So they said they don't expect the Biden administration to remove any existing tariffs before the midterm elections, but they do expect more tariff exclusions to be offered. While the Office of the U.S. Trade Representative has restarted the exclusion process, it is currently considering exclusions for only 549 products, which is the equivalent of about a quarter of the exclusions that have expired and 1% of exclusions requested.