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posted on 29 July 2018

Trade Tariffs Will Harm US More Than China

by Dan Steinbock, Difference Group

-- this post authored by Gong Yingchun, China.org.cn

Global economic and policy strategist, Dan Steinbock, expressed his concerns over the escalating U.S.-China trade tensions in a written interview with China.org.cn, saying that trade tariffs will harm the U.S. economy more than China.

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In mid-June, U.S. President Donald Trump announced a 25-percent tariff on US$50 billion of goods imported from China, and China responded with the equivalent duties on the same value of U.S. exports to China.

Dan Steinbock, who has served as research director at the India, China and America Institute (US) and guest fellow at Shanghai Institutes of International Studies (China), argues that the current tariffs on the US$50 billion of goods that the U.S. and China have mutually imposed will not dramatically affect the economy of either country in the short-term. Steinbock said:

"In the U.S., the first-year impact could penalize 0.1 to 0.2 percent of U.S. GDP."

However, over the long-term, he said that these tariffs will harm the U.S. economy more than that of China.

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In 2017, U.S. exports of goods to China hit US$130 billion, and China's exports of goods to the U.S. was approximately US$506 billion, according to the U.S. Census Bureau.

Therefore, the US$50 billion of goods targeted by the tariffs is approximately 38 percent of U.S. exports to China last year, but only 10 percent of Chinese exports to the U.S, according to Steinbock.

From this perspective, he contends that the U.S. is therefore "more exposed":

"These tariffs will harm America twice as much as China. If the tariff war escalates, the damage will increase proportionally."

Trump announced last Friday that he was ready to impose tariffs on all US$500 billion of imported goods from China. Steinbock said:

"A tenfold tariff escalation could multiply the adverse impact on the U.S. economy tenfold, which, in turn, could unsettle key stock indexes on Wall Street, disrupt the strengthening U.S. dollar, and undermine the Federal Reserve's tightening policies, as the Fed itself has indicated."

He stated that the Trump administration's new trade policy is "based on dated ideas and flawed economics," adding that the net effect of the "America First" doctrine in the international economy will have negative consequences for China, the U.S., EU, Mexico and Canada. Steinbock explained:

"It is even worse for America, especially when the U.S. sovereign debt exceeds US$21 trillion (106 percent of U.S. GDP), budget deficits are increasing, and fiscal expansion requires even more debt. Such economic policies rely on economic support by multilateral trading partners that Trump's tariff wars are alienating."

"Of course, Trump can subsidize U.S. farmers, for instance. But to do so he needs even more debt and what about other industries in the U.S. that also rely on exports to China. There are no winners in trade wars."

He pointed out that damage control is becoming more challenging as Trump's trade actions are also targeting Mexico, Canada, EU, possibly even Japan and South Korea. He said:

"The first effect is increasing economic uncertainty."

He also emphasized China's vital role in global economic growth:

"While global governance mechanisms remain U.S.-centered, China is actually now driving the global economy along with Brazil, Russia, and India."

He aded that unilateral U.S. trade actions against these countries are undermining growth prospects.

The International Monetary Fund (IMF) warned in its latest World Economic Outlook that rising trade tensions could negatively impact the prospects for global growth. Dr. Steinbock said:

"The IMF revised down the outlook for Europe, Japan and the U.K., as well as for India and Brazil. If Trump's stance prevails, that's just the beginning, over time the impact will be global and negative."

Responding to the current increasing trade tensions, China has reiterated that the country will stick to its reform and opening-up policy and work together with countries across the world to defend the principles of free trade and the multilateral trading system.

Steinbock concluded:

"China has sought to take into account both Chinese and global interests. That's the right approach."


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