China Daily Global Edition (USA)
Nobel economists issue warnings about trade war
Three Nobel Prize-winning economists say a US-China trade war could hurt the US, with one warning that trade tensions between the two countries could spark the next US economic crisis.
Robert Shiller, Christopher Pissarides and Joseph Stiglitz made their comments in interviews with CNBC over the weekend at the China Development Forum in Beijing.
“The immediate thing will be an economic crisis because these enterprises are built on long-term planning — they’ve developed a skilled workforce and ways of doing things. We have to rediscover these things in whatever country after the imports are cut off,” said Shiller, a Yale economist who was awarded the Nobel in 2013.
He described recent statements from US President Donald Trump as those of “a showman” who “obviously relishes” celebrity, noting that the recent escalation in trade rhetoric could reflect the proximity of US midterm elections in November this year.
“He’s been president for a year — it’s about time he does something that gets people’s excitement going,” Shiller said.
Pissarides, who was awarded a Nobel in 2010, is a professor of economics at the London School of Economics, said Trump was having a “knee-jerk reaction” to certain groups of Americans who did not benefit from the past several decades of open trade.
He said a trade war between the US and China would ultimately hurt the very people Trump says he’s aiming to protect.
“There are losers from (open trade), and as long as governments deal with the losers, so that they don’t feel left out, then everyone can benefit,” Pissarides said.
“What the United States has failed to do in the past was to deal with the loser. Standards of living have fallen for certain groups of the population at the same time as the economy was growing,” he said.
As a candidate, Trump promised to renegotiate or eradicate bad trade deals between the United States and its trading partners and pledged to hit back at China for what he said was its lopsided trade policies.
Trump promised to revive the US manufacturing industry and recreate jobs that had been lost in the past several decades, and Pissarides said Trump’s imposing tariffs was likely entirely engineered as an appeal to his base.
“The only way to avoid the trade war and make life better for everyone, at least create conditions under which it can be made better, is for Trump to back down on that, but he has never backed down on anything,” Pissarides said.
“Once he decided to do something, he’s pushing, and if any adviser is telling him, ‘It’s not a good idea, Mr. President,’ then he fires them. So, what can you do?” Pissarides added.
Joseph Stiglitz, who was awarded the Nobel in 2001 and is at Columbia University, warned that China’s leaders are likely prepared to initiate tariffs based on “a very good economic map with which they will target certain places in the United States where the pain will be maximized”.
An escalating trade war, he said, could have political ramifications for Trump — especially if trade partners’ retaliations hit the president’s base.
“If there is a broad-range increase in tariffs, it would affect their cost of living, the inflation would lead the Fed to raise interest rates at a higher rate, it would certainly impose a risk to the return to robust economic growth,” Stiglitz said. “This may be the one thing that actually does change this group of people who seem to have stuck with him even as he demonstrated bigotry, misogyny, support of people who [have a] Nazi background.”
“They stood with him so far. The question is: When their pocketbook gets hit, will they still?”
We have to rediscover these things in whatever country after the imports are cut off.”
Robert Shiller, Yale University economist Christopher Pissarides, London School of Economics