Trevor Hunnicutt & David Lawder

WASHINGTON, (Reuters) – As his administration tries fight inflation, President Joe Biden will need to settle a bitter internal argument among his aides regarding whether to lower taxes on Chinese goods. Two U.S. officials as well as three others familiar with the discussions said that this was something two of them had to do.

Biden’s government officials have debated for months about the fate of tariffs up to 25% on billions in Chinese imports. These were imposed by Trump and cost American companies billions.

Sources say that Janet Yellen, U.S. Treasury Secretary, is pushing for a reduction in many tariffs. Katherine Tai, U.S. Trade Representative, wants to delay for a China trade strategy. This would address both protecting U.S. workers and China’s behaviour on global markets. This could also include strategic tariffs.

It is uncommon to see a clear division in the White House, which has made providing an unifying front part of its foundational approach to managing the largest economy in the world.

One adviser said that unions, which are critical to Democrats’ November campaign, are against any relaxation of tariffs. Biden himself told union leaders that they will be involved in any final tariff decisions.

The inflation rate jumped 8% in the past year. This puts pressure on Biden, the Federal Reserve, to lower the cost of groceries, gasoline, and other consumer goods. To retain Congress control, Biden’s Democrats will have to fight hard in the November midterm elections.

According to the administration, there is no short-term solution for inflation. This issue was initially thought temporary.

Economists from both the government and the outside world agree that lowering tariffs would be one of their last significant steps to reduce costs.

Yellen stated publicly that it is worth looking into tariff reductions for their potential “desirable” effects on lowering U.S. inflation, echoing the comments of Daleep Singh, Biden’s deputy National Security Advisor.

According to a source familiar with the discussion, Yellen thinks that some tariffs aren’t in the U.S. economic interests and will cost Americans regardless of inflation arguments.

According to the Peterson Institute for International Economics, reducing China’s tariffs can reduce inflation by up to 1.3 percentage points or $797 per household. Tai has publicly challenged these conclusions as “something between fiction and an interesting academic exercise”. He called for a strategic view of tariffs.

Last month, the Biden administration launched an official review of China’s tariffs that Trump imposed in 2018 and 2019. China began imposing tariffs on strategic industrial goods worth $50 billion to punish it for forcing technology transfers and theft. However, after China retaliated, these were increased to $370 Billion, which covered toys, bikes, flooring, and other goods.

This review can take several months. There will be a period of public comments between July 5th and August 22 for any final decisions.

According to some trade experts, a better way to alleviate inflation would be to expand the exemptions that are granted to Chinese importers. Biden had already lost thousands of them, and Tai only restored exclusions for 352, while more than 140 U.S. legislators have called to expand the list.

There have been polarized opinions among political advisers. Some see the risks of alienating China hawks and labor unions from key battlegrounds. Others argue that lifting tariffs would gain broad support in a country with rising prices.

According to a source familiar with the discussions, Tai feels that the China tariffs should be decided in the context of a comprehensive trade strategy. It was not possible to make a unilateral, rapid move.

According to one source, the divide between Yellen & Tai will likely force Biden into a mid-summer decision.