SINGAPORE (Oct 15): The most frequent questions that I get when I speak to non-economists concern the US tariffs on imports from China. Why is US President Donald Trump’s administration doing this? Aren’t the tariffs a tax on the goods purchased by US consumers? Why does Trump think the US can “win” a trade war with China? How do the Chinese respond to the current tariffs and threats of more? And so on.
I usually start my answer by stressing that, like almost all economists, I oppose tariffs in general. I acknowledge that we have an enormous trade deficit with the rest of the world (about US$800 billion, or $1.1 trillion, this year, or 4% of US GDP) and that our trade deficit with China is about half of that total. But our overall trade deficit reflects the fact that the US spends more than it produces.
It’s hard to know why the US is imposing tariffs, because the administration has not said clearly what it is trying to achieve in doing so. One reason is that several senior officials are vying to influence the US’ China trade policy: Treasury Secretary Steven Mnuchin, US Trade Representative Robert Lighthizer, White House Director of Trade and Manufacturing Policy Peter Navarro and Commerce Secretary Wilbur Ross.