US is repeating historical tariff mistakes: economist
China and the US still face trade obstacles amid US anxiety and threat to Huawei. The deal is uncertain, though US President Donald Trump said on Friday that Treasury Secretary Steve Mnuchin had a very good talk with Chinese trade officials, giving a positive signal for potential face-to-face talks, Reuters reported. US economist Stephen Samuel Roach (Roach) shared his views on what he considers the inherent and false narrative of the US on China in an exclusive interview with the Global Times (GT) at Yale Center Beijing. He is a senior fellow at Yale University’s Jackson Institute of Global Affairs, and was former chairman of Morgan Stanley Asia and chief economist at Morgan Stanley, the New York-based investment bank. Roach discusses Washington’s “basic understanding of how tariffs work” while ignoring its domestic weakness reflected by a seriously low savings rate. Tariffs are the tool of an economic bully, he said. He argued that the US should not use China as a scapegoat again by replicating the 1930 Smoot-hawley Tariff Act. Rather, China and the US should set up a new scheme for talks on trade, including developing a cybersecurity accord, Roach said. GT: You mentioned that the “China threat theory” has become a panacea for all problems. Blaming China is a consensus of Republicans and Democrats. How did this phenomenon surface? Roach: I think it’s largely political. Over the past 25 years in the US, there’s been enormous dispersion between those at the top, those in the middle. As the inequality of opportunity and income widened, workers and families under pressure are demanding a solution from their political leaders. The leaders find it easier to blame others than to admit that they have some responsibility in creating the problems. We have a long history of that.
Thirty years ago, we blamed Japan, and today we blame China. We use the trade deficit to justify that blame. In the first half of the 1980s when we emerged from a deep recession in the US, the manufacturing sector remained very weak, and the trade deficit expanded dramatically. Trade with Japan accounted for 42 percent of the deficit in the US. So we blamed Japan for squeezing American manufacturing workers. And we led a group of industrial countries that put enormous pressure on Japan to revalue the yen.
Thirty years later, our trade deficits have ballooned, and it’s China that accounted for 48 percent of the merchandise trade deficit last year. So we blame China for the pressure that has continued to squeeze American workers. What we ignored is that the bilateral trade deficit is not a good measure of blame. The real problem for the US is the lack of domestic savings. GT: To Mexico, EU, India and China, tariff seems to be Trump’s most powerful weapon. As the biggest economy, how does this affect the global trade system? Roach: Tariffs are a huge mistake. They’re not good. Trump believes that tariffs are part of his approach to the art of a deal. Tariffs are the tool of an economic bully. He threatened tariffs on Mexico, and Mexico has responded by increasing border security. Trump puts pressure on China with tariffs that raise the cost of trade. They reverse the course of globalization. And they ultimately cause hardship for consumers who benefit from trade liberalization.
In May 1930, an open letter was published on the front page of the New York Times, signed by over 1,000 leading US economists, urging then president Herbert Hoover not to