The White House’s top economic adviser has admitted US businesses will suffer from tariffs on Chinese goods, contradicting US President Donald Trump’s widely denounced claim that it will only be China that pays.
“Yes, I don’t disagree with that,” said Larry Kudlow, the head of the president’s National Economic Council, when Chris Wallace, host of Fox News Sunday TV programme, asked him, “It’s US businesses and US consumers who pay, correct?”
Kudlow added, “Both sides will pay,” but he stipulated that China “will suffer (economic) losses” from reduced exports to the US, not from paying the tariffs.
Kudlow’s admission contradicts many of Trump’s comments and tweets to the effect that Chinese companies pay the tariffs in what amounts, in the president’s view, to a massive transfer of wealth to the United States from China. Yet almost no economist has agreed with Trump’s view and fact-checkers routinely brand the president’s assertion false and point out that US importers of goods from China pay the tariffs.
Trump has also asserted that trade wars are “easy to win”, but Kudlow accepted that they come with costs for the US economy, though he downplayed the effect.
Fresh tariffs
On Friday, in the midst of last-ditch talks to rescue a trade deal, the Trump administration raised duties on $200bn of Chinese imports to 25 percent from 10 percent, after charging that China had backtracked on commitments it made earlier in the negotiations. The administration has already hit $50bn of additional Chinese goods with 25 percent duties.
Later on Sunday, Trump reiterated his view in a tweet: “We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries.”
Yet Carl Weinberg, chief international economist at High Frequency Economics, a forecasting firm, pointed out that many goods made in China are not manufactured elsewhere. That is why many US importers have little choice but to pay the tariff.
“So if you need that new iPad, it is you who will be paying the import duty, not some worker in China,” Weinberg wrote in a research note.
Imposing those tariffs would affect a wide range of consumer goods – clothes, shoes, toys and electronics – that have been mostly exempted so far and could prompt steep cost increases that many US citizens would likely notice.
Kudlow, however, said the economic effect of placing tariffs on all Chinese imports would be to cut economic growth 0.2 percentage points, “a very modest number”.
Independent economists, though, think the effect would be larger. Gregory Daco, an economist at Oxford Economics, estimates it would reduce US growth by a half percentage point and cost 300,000 jobs.
China defiant
Kudlow also said that China needs to agree to “very strong” enforcement provisions for an eventual deal and said the sticking point was Beijing’s reluctance to put into law changes that had been agreed upon.
He also said the US is awaiting retaliation from China over the increased tariffs, after the talks in Washington ended on Friday without a deal, but added that the US tariffs would remain in place while negotiations continue.
Beijing remained defiant.
“At no time will China forfeit the country’s respect, and no one should expect China to swallow bitter fruit that harms its core interests,” the People’s Daily, a newspaper controlled by the Chinese ruling Communist Party, said in a commentary on Monday.
It said Beijing was open to talks but would not yield on important issues of principle.
China’s nationalist Global Times tabloid also said in an editorial on Monday that the country had no reasons to fear a trade war.
“The perception that China cannot bear it is a fantasy and misjudgement,” the commentary said.
“If they weren’t being seriously provoked, the Chinese people would not favour any trade war. However, once the country is strategically coerced, nothing is unbearable for China in order to safeguard its sovereignty and dignity as well as the long-term development rights of the Chinese people.”
G20 meeting?
Trump began the standoff last year because of complaints about unfair Chinese trade practices. Washington is pressing Beijing to change its policies on protections for intellectual property, as well as massive subsidies for state-owned firms, and to reduce the yawning trade deficit.
Since last year, the US and China had exchanged tariffs on more than $360bn worth of two-way trade, gutting US agricultural exports to China and weighing on both countries’ manufacturing sectors.
Kudlow told Wallace that Trump and China’s President Xi Jinping could meet next month on the sidelines of the Group of 20 summit in Japan to discuss their differences on trade, but no new talks are scheduled.
As for future negotiations, while there are “no concrete, definite plans yet”, Kudlow said China had invited Treasury Secretary Steven Mnuchin and Lighthizer to Beijing – and higher-level discussions could be possible.
The chances of Trump and Xi meeting during the Group of 20 summit in Japan in late June “are probably pretty good”, he said.
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