The American flag flies near high-stacked shipping containers in the Port of Los Angeles, California, on April 19, 2021.
Frederic J. Brown | AFP | Getty Images
Removing tariffs on goods during the worst of the trade war would help reduce inflation in the US, former Treasury Secretary Jacob Lew told CNBC on Tuesday.
But there is currently “no political space” to do this, he said on CNBC’s “Street Signs Asia”.
“I think the United States and China have deep differences. I never thought that it should just be about negotiating the exchange of one or the other good on one side or the other. It would be about a level playing field have to go,” Lew said.
He continued: “I thought from the beginning that tariffs were an ineffective way of coping with their attacks on American consumers. And right now, with inflation being an issue, reversing tariffs would reduce inflation in the United States. States even reduce.”
Relations between Washington and Beijing deteriorated in 2018, when the Trump administration imposed tariffs on Chinese goods worth billions of dollars and Beijing retaliated with similar punitive measures, sending both sides into a protracted trade war.
U.S. tariffs on Chinese goods averaged 19.3% on a trade-weighted basis in early 2021, while Chinese tariffs on U.S. products were about 20.7%, according to data collected earlier this year by think tank Peterson Institute for International Economics.
Before the trade war, US tariffs on Chinese goods averaged 3.1% in early 2018, while Chinese tariffs on US goods stood at 8%, the data shows.
Referring to tariff rollbacks, Lew said: “I think both leaders need to create political space in our two countries for these issues to become issues where you can move and make progress, or else we’ll either stay where we are. . I think we can do better.”
According to a report from Moody’s Investors Service earlier this year, US companies bear most of the cost of the increased tariffs imposed at the height of the US-China trade war.
The rating agency said US importers are absorbing more than 90% of the additional costs as a result of the US’s 20% tariff on Chinese goods. That means US importers pay about 18.5% more in price for a Chinese product subject to that 20% tariff, while Chinese exporters receive 1.5% less for the same product, according to the report.
‘Excessive nervousness’ about inflation
But Lew told CNBC it’s likely “much of the inflation we’re seeing will find its way.”
“I don’t think anyone is predicting hyperinflation,” he said. “But I think there’s been a little bit of exaggerated nervousness about inflation. And frankly, the public response to inflation has been very strong.”
But Lew warned that policymakers must walk a thin line and ensure that measures to combat inflation don’t slow the economy so much as to slow growth.
— Yen Nee Lee of CNBC, Jeff Cox, contributed to this report.