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Economists say US tariffs are wrong move on a valid issue

They say Trump is right to highlight China's IP theft and market-access issues, but point out that raising tariffs could backfire on US businesses and consumers

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President Trump's senior economic adviser Larry Kudlow about to board Air Force One last week. He said "no free-market guy, no free-trade guy disagrees on this subject" of doing something about China's continued theft of intellectual property and moves to restrict access to its market.

Washington

PRESIDENT Donald Trump's advisers insist that the economics profession is solidly behind the administration's threat to impose tariffs on hundreds of billions of dollars of Chinese imports, but many top economists say, no, they're not.

Across the ideological spectrum, trade experts and former top economic advisers to presidents say Mr Trump is right to highlight issues on which China is viewed as an offender, such as intellectual-property theft and access to its domestic market.

But many of those experts say Mr Trump's planned tariffs would backfire - by raising costs to US businesses and consumers, and by inviting retaliation against American exporters; they say he would better serve his purposes by enlisting international allies in a pressure campaign against Beijing.

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Laura D. Tyson, an economist at the Haas School of Business of the University of California, Berkeley, who headed the Council of Economic Advisers under President Bill Clinton, said: "Many economists have said, yeah, there's some legitimate issues here. I haven't seen any who have said the appropriate response is a series of tariffs on a bunch of goods, most of which don't have any real link to the underlying issue."

She and many other economists say it was a mistake last year for Mr Trump to have pulled the US out of the Trans-Pacific Partnership. Proponents of that agreement say it would have unified a dozen countries against the Chinese on trade issues.

David Autor, a Massachusetts Institute of Technology economist whose research suggests that opening trade with China cost the United States two million jobs in the late 1990s and early 2000s, said: "I don't think the way the administration is going about it is a particularly strategic one. The first way to go about it should have been to sign TPP, which was set up as a bulwark against China."

Mr Trump has long railed against Chinese trade practices, and he has long criticised previous presidents for their approach to the issue. This year, he has pushed aggressively on the issue. He levied tariffs on imported steel and aluminium, which were largely viewed as a shot at Chinese oversupply of those metals.

Then he proposed as much as US$150 billion in tariffs on other imports from China.

His advisers have stressed that economists largely agree with him that the Chinese are stealing US intellectual property and curbing access to their market in ways that put American companies at a disadvantage.

Larry Kudlow, the new director of the National Economic Council, said on CNN's "State of the Union" on Sunday: "No free-market guy, no free-trade guy disagrees on this subject. The guild, if you will, the brethren of the economic profession have all agreed that something has to be done."

Peter Navarro, the director of Mr Trump's Office of Trade and Manufacturing Policy, told NBC's "Meet the Press" on Sunday that "what we have here is a situation where every American understands that China is stealing our intellectual property, they're forcing the transfer of our technology when companies go to China, and by doing that, they steal jobs from America, they steal factories from America, and we run an unprecedented US$370-billion-a-year trade deficit in goods. This is an unsustainable situation."

Many economists agree that China needs to be confronted on several trade issues, although very few share Mr Trump's fixation on the US trade deficit with China. Most say bilateral trade deficits are not a good measure of market access or the fairness of trade agreements.

N. Gregory Mankiw, a Harvard economist who headed President George W. Bush's Council of Economic Advisers, said: "I think the basic issue that the Trump administration is pointing to - the lack of intellectual-property protection - is a serious one, particularly for the United States. It's a completely serious and appropriate issue for the administration to be concerned with."

What worries Professor Mankiw and others is the president's threat of tariffs, which administration officials have portrayed both as a bargaining chip and as a policy that Mr Trump would certainly carry through on.

Economic forecasters are just beginning to predict how tariffs would affect growth. Goldman Sachs analysts wrote this week that the currently proposed tariffs would cut less than 0.1 percentage points off US growth this year, but also said that "it is harder to rule out continued escalation to a level that does ultimately have a first-order impact on the economy" if the United States and China do not find compromise.

Because tariffs would raise prices for US businesses and consumers that buy imported goods, "you're hurting yourself if you follow through with it", said Prof Mankiw. "It just seems to me to be a not very smart threat to be making, given that it would not be rational to follow through with it."

Economists who don't like tariffs but favour action against China largely say the US should be forming a multinational coalition to confront the Chinese.

Jason Furman, an economist at Harvard's Kennedy School of Government, who headed the Council of Economic Advisers under President Barack Obama, said: "Any good strategy has to include getting other countries on your side. If it's the US versus China, we're similar-sized economies. If it's the United States and the world versus China, that's not something China can win."

Dr Furman, Prof Mankiw and others said the US should continue to press its case against China before the World Trade Organization - a strategy that Mr Navarro and other advisers to Mr Trump say has not produced favourable results in the past. The economists who disagree with the administration's approach also stress, frequently, that joining the TPP would have given the United States leverage in this dispute.

Since Mr Trump quit the pact, 11 other countries have forged ahead on it. He said this year that he would reconsider joining the agreement if it was renegotiated to benefit the US more substantially.

Austan Goolsbee, an economist at the University of Chicago's Booth School of Business and another past chairman of Mr Obama's Council of Economic Advisers, said it is "obviously a terrible mistake" to have quit the agreement. "This was a coalition of the vast majority of the economies of Asia outside of China, agreeing to principles exactly of the form that we're now saying that we want. We would be in a lot better situation if we had all of those people on our side."

Mr Trump's unilateral approach, including his tariff threats, has drawn qualified support from at least one unlikely high-profile economist: Martin Feldstein of Harvard, a chairman of President Ronald Reagan's Council of Economic Advisers.

Prof Feldstein began a syndicated op-ed column last month on the subject of Mr Trump's steel and aluminium tariffs, in which he declared: "Like almost all economists and most policy analysts, I prefer low trade tariffs or no tariffs at all."

But he went on to criticise China's intellectual-property policies and predict that the US "cannot use traditional remedies for trade disputes or World Trade Organization procedures to stop China's behaviour".

US negotiators, he wrote, would use tariff threats "as a way to persuade China's government to abandon the policy of 'voluntary' technology transfers". "If that happens, and US firms can do business in China without being compelled to pay such a steep competitive price, the threat of tariffs will have been a very successful tool of trade policy." NYTIMES