Two years ago, former President Trump signed the US-China phase one trade deal, stipulating that China would buy an additional $200 billion worth of US goods over pre-levels. the trade war by the end of 2021. We now know that China has bought none of these additional US exports, and hasn’t even returned to its pre-trade imports of US goods – which came as no surprise many experts, who had long warned that the deal was unrealistic and ill-conceived.
Last week, the Biden administration criticized China’s failure to meet its commitments in a report to Congress, while also criticizing the terms of the trade deal itself, saying it was “ready to use the national trade tools strategically if necessary in order to reach a higher level”. playground with China.
What kinds of actions could the United States take?
“It’s hard to do something that doesn’t end up hurting us more than it hurts them. That’s kind of the lesson we’ve learned from Trump’s tariffs and also from all the supply chain issues,” said Paul Krugman, Nobel laureate and New York Times columnist who has recently wrote on the matter.
Krugman spoke with Marketplace’s Sabri Ben-Achour about takeaways from the US-China trade war and the domestic politics of Trump’s tariff lifting. The following is an edited transcript of their conversation.
Sabri Ben Achour: President Trump, when he was in office, was obsessed with the trade deficit, and that informed this deal. Economists almost everywhere said he misunderstood economics and missed the real issues between the United States and China. When you look at the relationship between the United States and China, what do you think is the biggest problem, economically?
Paul Krugman: The biggest problem is not the quantity of things, the value of the things that we sell. It’s that China is quite clearly trying, through its industrial policy, to intervene in areas where the United States has an advantage. They doubted respect for intellectual property. It is essentially an attempt to obtain technology that has been developed elsewhere for free. So it’s more of a conflict of long-term growth strategy than anything else.
Ben Achour: The Biden administration says it is “ready to use domestic trade tools strategically as needed to establish a more level playing field with China,” but it does not elaborate. What options do you think are available here?
Krugman: It’s hard to do something that doesn’t end up hurting us more than it does them. That’s kind of the lesson we’ve learned from Trump’s tariffs and also from everything that’s happened in the supply chain issues. So really what we should be doing is investing in the future — we should be investing in infrastructure, we should be investing in education, and with some kind of industrial policy on our part, trying to identify the things that are industries or technologies of the future and supporting them. So, on one level, Build Back Better is, in fact, an attempt to, among other things, address the kinds of issues that are real points of contention between the United States and China.
Ben Achour: You mentioned that the lesson was that the tariffs hurt the United States more than they hurt China. Why do you say that?
Krugman: Well, it turns out that, first of all, Trump officials tended to impose the tariffs not so much on consumer goods – perhaps because they were afraid people would see higher prices. – than on industrial inputs, which ended up making American manufacturing less competitive. , no more. So we probably ended up having a little less manufacturing jobs than we otherwise would have. And now, what we’ve seen in the post-pandemic global economy is how crucial it is to keep everything in supply. This is not the case when we sell something, we gain, and when we buy something, we lose. In fact, right now, being able to buy what we want seems to be much more important than how much we manage to ship to other countries.
Ben Achour: Do you think the Trump tariffs are contributing to some of the inflation we’re seeing right now?
Krugman: Yes a little bit. I mean, even if we took them all off instantly, it would be a fraction of a percent off the annual inflation rate – because if there aren’t enough shipping containers to carry more stuff from China to the United States, so if you cut tariffs, which means people want to buy more Chinese products, we can’t get them across the Pacific; we cannot unload it in the ports of Los Angeles. And so, in this very exceptional circumstance, the benefits of lower Chinese tariffs at this time would likely go largely to the shipping companies.
Ben Achour: In the longer term, should President Biden lift these tariffs? And could he lift them, politically, if he wanted to?
Krugman: The tariffs were counterproductive. They were a loss for the United States. But, politically, if I was a Biden adviser, I would say, “Boy, if you do something like that, people will resent you for being soft on China. And are the benefits of lifting tariffs great enough to justify taking this political risk? And I would be very dubious about that.