23 July 2018
Trump Reiterates Threat to Impose Tariffs on Half a Trillion Worth of Mainland Chinese Products
President Trump reiterated in a 20 July interview with CNBC a previous threat to impose additional tariffs on the totality of U.S. imports from mainland China, worth US$505.5 billion in 2017. By comparison, the United States exported US$129.9 billion worth of goods to the mainland last year, which means that Beijing would not be able to match such tariff action by Washington tit-for-tat. Trump said in the interview that he is “not doing this for politics” but rather in order to “do the right thing for our country.” He complained that the United States has “been ripped off by China for a long time”, including in the areas of trade and monetary policy, and continued to criticise the European Union, Mexico and Japan for running trade surpluses with the United States.
Trump’s continued single-minded focus on trade deficits contrasts with the conclusions of a recent report by the Congressional Research Service, an arm of the U.S. Library of Congress that provides non-partisan research at the request of lawmakers and also publishes periodic reports on subjects of interest to the U.S. Congress. Among other things, the report states that the Trump administration is using the U.S. trade deficit as “a barometer for evaluating the success or failure of the global trading system, U.S. trade policy, and bilateral trade relations with various countries” and also “characterizes the trade deficit as harming the performance and national security of the U.S. economy.”
This approach, according to the report, “contrasts with the views of most economists, who argue that the overall U.S. trade deficit stems from U.S. macroeconomic policies that create a savings and investment imbalance in which domestic sources of capital are not sufficient to meet domestic capital demands.” The report points out that “as such, attempting to alter the trade deficit without addressing the underlying macroeconomic issues will likely be counterproductive and create distortions in the economy.” While some observers contend that the free trade agreements the United States has signed with other countries have failed to provide U.S. exporters with reciprocal treatment and/or have exposed U.S. producers to increased competition, the report asserts that “most economists, however, question both the role that trade agreements play in determining the trade deficit and the position that the trade deficit is substantially the product of unfair treatment.”
The report does acknowledge that working to ensure that countries around the globe tear down trade barriers and fully comply with their international trade obligations is “likely to have benefits by improving efficiency and creating a level playing field in the global trading system.” Nevertheless, CRS concludes that “given the macroeconomic origins of the trade deficit, as is generally accepted, addressing such distortions may alter the composition of U.S. trade among trading partners and commodities, but would be unlikely to affect the overall U.S. trade deficit.” The report also restates the widely-held belief by most economists that “from the perspective of the economy as a whole, both consumers and producers benefit from liberalized trade” and “the gains for the economy as a whole outweigh the costs, irrespective of the bilateral trade deficit or surplus.”