Economists Say U.S. Tariffs Are Wrong Move on a Valid Issue
WASHINGTON — President Trump’s economic advisers insist that the economics profession is solidly behind the administration’s threat to impose tariffs on hundreds of billions of dollars of Chinese imports. Many top economists say, no, they’re not.
Across the ideological spectrum, trade experts and former top economic advisers to presidents say Mr. Trump is right to highlight issues on which China is widely viewed as an offender, such as intellectual-property theft and access to its domestic market. But many of those experts say that Mr. Trump’s planned tariffs would backfire — by raising costs to American businesses and consumers, and by inviting retaliation against American exporters — and that he would better serve his purposes by enlisting international allies in a pressure campaign against Beijing.
“Many economists have said, yeah, there’s some legitimate issues here,” said Laura D. Tyson, an economist at the Haas School of Business of the University of California, Berkeley, who headed the Council of Economic Advisers under President Bill Clinton. “I haven’t seen any who have said the appropriate response is a series of tariffs on a bunch of goods, most of which don’t have any real link to the underlying issue.”
One of the president’s biggest mistakes in trade policy, Ms. Tyson and many economists say, was his decision early last year to pull the United States out of the Trans-Pacific Partnership. Proponents of that agreement say it would have unified a dozen countries against the Chinese on trade issues.
“I don’t think the way the administration is going about it is a particularly strategic one,” said David Autor, a Massachusetts Institute of Technology economist whose research suggests that opening trade with China cost the United States two million jobs in the late 1990s and early 2000s. “The first way to go about it should have been to sign TPP, which was set up as a bulwark against China.”
Mr. Trump has long railed against Chinese trade practices, and he has long criticized previous presidents for their approach to the issue. This year, he has pushed aggressively on the issue, levying tariffs on imported steel and aluminum that were largely viewed as a shot at Chinese oversupply of those metals, and then separately proposing as much as $150 billion in tariffs on other imports from China.
His advisers have stressed that economists largely agree with Mr. Trump that the Chinese are stealing American intellectual property and restricting access to their market in ways that put American companies at a disadvantage.
“No free-market guy, no free-trade guy disagrees on this subject,” Larry Kudlow, the new director of the National Economic Council, said on CNN’s “State of the Union” on Sunday. “The guild, if you will, the brethren of the economic profession have all agreed that something has to be done.”
Peter Navarro, the director of Mr. Trump’s Office of Trade and Manufacturing Policy, told NBC’s “Meet the Press” on Sunday that “what we have here is a situation where every American understands that China is stealing our intellectual property, they’re forcing the transfer of our technology when companies go to China, and by doing that, they steal jobs from America, they steal factories from America, and we run an unprecedented $370-billion-a-year trade deficit in goods. This is an unsustainable situation.”
Many economists do in fact agree that China needs to be confronted on several trade issues, though very few share Mr. Trump’s fixation on the United States’ trade deficit with China.
“I think the basic issue that the Trump administration is pointing to — the lack of intellectual-property protection — is a serious one, particularly for the United States,” said N. Gregory Mankiw, a Harvard economist who headed President George W. Bush’s Council of Economic Advisers. “It’s a completely serious and appropriate issue for the administration to be concerned with.”
What worries Mr. Mankiw and others is Mr. Trump’s threat of tariffs, which administration officials have portrayed both as a bargaining chip and as a policy Mr. Trump would certainly carry through on.
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Economic forecasters are just beginning to predict how tariffs would affect growth. Goldman Sachs analysts wrote this week that the currently proposed tariffs would cut less than 0.1 percentage points off American growth this year, but also said that “it is harder to rule out continued escalation to a level that does ultimately have a first-order impact on the economy” if the United States and China could not find compromise.
Because tariffs would raise prices for American businesses and consumers that buy imported goods, “you’re hurting yourself if you follow through with it,” Mr. Mankiw said. “It just seems to me to be a not very smart threat to be making, given that it would not be rational to follow through with it.”
Economists who don’t like tariffs but favor action against China largely say the United States should be forming a multinational coalition to confront the Chinese.
“Any good strategy has to include getting other countries on your side,” said Jason Furman, an economist at Harvard’s Kennedy School of Government who headed the Council of Economic Advisers under President Barack Obama. “If it’s the United States versus China, we’re similar-sized economies. If it’s the United States and the world versus China, that’s not something China can win.”
Mr. Furman, Mr. Mankiw and others said the United States should continue to press its case against China before the World Trade Organization — a strategy that Mr. Navarro and other advisers to Mr. Trump say has not produced favorable results in the past. The economists who disagree with the administration’s approach also stress, frequently, that joining the Trans-Pacific Partnership would have given the United States leverage in this dispute.
Since Mr. Trump quit the pact, 11 other countries have forged ahead on it. He said this year that he would reconsider joining the agreement if it was renegotiated to benefit the United States more substantially.
“It’s obviously a terrible mistake” to have quit the agreement, said Austan Goolsbee, an economist at the University of Chicago’s Booth School of Business and another past chairman of Mr. Obama’s Council of Economic Advisers. “This was a coalition of the vast majority of the economies of Asia outside of China, agreeing to principles exactly of the form that we’re now saying that we want. We would be in a lot better situation if we had all of those people on our side.”
Mr. Trump’s unilateral approach, including his tariff threats, has drawn qualified support from at least one unlikely high-profile economist: Martin Feldstein, of Harvard, a chairman of President Ronald Reagan’s Council of Economic Advisers.
Mr. Feldstein began a syndicated op-ed column last month, on the subject of Mr. Trump’s steel and aluminum tariffs, by declaring, “Like almost all economists and most policy analysts, I prefer low trade tariffs or no tariffs at all.” But he went on to criticize China’s intellectual-property policies and predict that the United States “cannot use traditional remedies for trade disputes or World Trade Organization procedures to stop China’s behavior.”
American negotiators, Mr. Feldstein wrote, would use tariff threats “as a way to persuade China’s government to abandon the policy of ‘voluntary’ technology transfers.”
“If that happens, and U.S. firms can do business in China without being compelled to pay such a steep competitive price,” he continued, “the threat of tariffs will have been a very successful tool of trade policy.”