Two years ago, former President Trump signed the Phase 1 trade agreement between the United States and China, which stipulated that China would buy an additional $ 200 billion of US goods above pre-war levels before the end of 2021. We now know that China did not buy any of these additional US exportsand did not even return to its pre-trade imports of American goods – something that did not come as a surprise to many experts who had long warned that the deal was unrealistic and ill-considered.
Last week, the Biden administration criticized China’s inability to live up to its commitments in a report to Congress while also criticizing the terms of the trade agreement itself, saying it was “prepared to use domestic trading tools strategically as needed to achieve more equal terms with China.”
What kind of actions could the United States take?
“It’s hard to do something that does not end up hurting us more than it hurts them. It’s a kind of lesson that we have learned from the Trump tariffs and also from everything that has gone on in the supply chain issues, “said Paul Krugman, Nobel laureate and columnist for the New York Times. who recently wrote about the problem.
Krugman spoke with Marketplace’s Sabri Ben-Achour about takeaways from the US-China trade war and domestic policies to lift Trump tariffs. The following is an edited transcript of their conversation.
Sabri Ben-Achour: President Trump was, while in office, obsessed with the trade deficit, and it informed this deal. Economists said almost everywhere that he misunderstood economics and missed the real problems between the United States and China. When you look at the relationship between the United States and China, what do you see as the biggest problem economically?
Paul Krugman: The biggest problem is not how many things, the value of things we sell. It is that China, quite clearly through industrial policy, is trying to move into areas where the United States has an advantage. They have been in doubt about respect for intellectual property. There is basically an attempt to get technology for free that has been developed elsewhere. So it’s more of a long-term growth strategy conflict than anything else.
Ben-Achour: The Biden administration says it is “prepared to use domestic trading tools strategically as needed to achieve more equal terms with China,” but it does not provide details. What do you think the options available here are?
Krugman: It’s hard to do something that does not end up hurting us more than it hurts them. It is a kind of lesson that we have learned from the Trump tariffs and also from everything that has gone on in the supply chain issues. So really, what we should do is invest in the future – we should invest in infrastructure, we should invest in education and, with some form of our own industrial policy, try to identify things that are industries or technologies in the future and support them. So at some level, Build Back Better is in fact an attempt to, among other things, solve the kind of problems that are real points of conflict between the United States and China.
Ben-Achour: You mentioned that the lesson has been that tariffs have hurt the United States more than China. Why do you say that?
Krugman: Well, it turns out that, first of all, Trump’s officials tended not to impose tariffs as much on consumer goods – perhaps because they were afraid people would see higher prices – as on industrial commodities, which ended up making US manufacturing less competitive. , not anymore. So we probably ended up having somewhat fewer production jobs than we otherwise would have had. And now what we have seen in the post-pandemic world economy is just how crucial it is to keep the supply of everything going. It is not that when we sell something, we win, and when we buy something, we lose. In fact, right now, being able to buy what we want seems to be much more important than how much we manage to ship to other countries.
Ben-Achour: Do you think the Trump tariffs are contributing to some of the inflation we are seeing now?
Krugman: Yes a little bit. I mean, even if we took them all away right away, it would be a fraction of a percent of the annual inflation rate – because if there are not enough shipping containers to get more things from China to the US, then if you cut back on customs, which means people want to buy more Chinese goods, we can not get things across the Pacific; we can not unload it in the ports of Los Angeles. And so, in this very unusual circumstance, the benefits of cutting back on China tariffs right now are likely to go largely to shipping companies.
Ben-Achour: Should President Biden abolish these tariffs in the long run? And could he lift them, politically, if he wanted to?
Krugman: Tariffs were counterproductive. They have been a loss to the United States. But politically, if I were a Biden adviser, I would say, “Boy, if you do something like that, people will be overwhelmed by you because you are gentle with China. And the benefits of raising tariffs are big enough to justify taking the political risk? ” And I would be very much in doubt about that.