Tariffs and Trade: Trump’s Troubling Tango With Xi
The ongoing trade tensions between China and the United States have been a topic of global concern for many months. As the Trump administration imposes significant tariffs on Chinese goods, the Chinese President Xi Jinping refuses to yield to the US demands for aggressive action. This article, by Paul Krugman and Eswar Prasad published by The New York Times, discusses the negative consequences of Trump’s tariff policy on China, the global economy, and ultimately US businesses and consumers. Citing a historical example, the authors suggest that a period of relative peace in the trade war could result in even more significant trade actions in the future. Therefore, it is crucial to understand the implications of the current policy and seek alternative solutions that will result in a more equitable and sustainable trade relationship between China and the US rather than relying on trade restrictions.
Krugman and Prasad describe the situation in clear and concise language. The Trump administration’s 10% tariff on $200 billion of Chinese goods, which was announced in September 2019, was increased to 25% in October 2019. This move has led to retaliatory measures from China, imposing its own 5-10% tariffs on $60 billion of American goods. While the Trump administration may argue that these measures are necessary to redress China’s trade imbalance, the authors contend that the US tariffs primarily benefit the American farming sector and have harmed the manufacturing sector, leading to job losses and higher prices for US businesses and consumers. Furthermore, the authors point out that the Chinese government has devalued its currency, the yuan, by 3%, which will increase China’s exports and reduce the prices of its goods. This move will lead to reduced purchasing power for the US citizens, increased inflation, and negative economic growth.
The authors also highlight that trade restriction is not a new phenomenon in US history. President Herbert Hoover’s Smoot-Hawley tariff policy, enacted in 1930, aimed to protect US industries by increasing tariffs on imported goods. This policy led to retaliatory responses from other countries, resulting in a surge of protectionism called the “Smoot-Hawley tariff war.” The authors suggest that a similar trend may be taking place under Trump’s presidency, and the adverse consequences of such a trade war could be devastating. The authors contend that the US administration’s tariff policy on China is primarily electoral, and that by trumpeting bigger tariffs and hard line stances, the president will ensure that his constituents keep voting for him. However, if Trump wins a second term as the US President and decides to continue his confrontational policy towards China, then it will result in long-term economic and diplomatic harm.
The authors conclude their article by providing a way forward. They suggest that a more productive strategy for the US administration could be to negotiate a comprehensive trade agreement to address issues like intellectual property infringement and technology transfer. They suggest that a better cooperation between the two superpowers could lead to benefits for both countries and contribute to a more equitable and productive trade relationship. Overall, this article by Krugman and Prasad provides a nuanced perspective on the ongoing trade war between China and the US. The authors emphasize the negative consequences of the current policy and suggest alternative solutions that can lead to a more promising future for the global economy and business.
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