US is re­peat­ing his­tor­i­cal tar­iff mis­takes: econ­o­mist

Global Times US Edition - - INDE - By Hu Yuwei and Zhao Juecheng

Ed­i­tor’s Note:

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

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