White House chief economic advisor Larry Kudlow with Donald Trump (File)
The White House’s top economic advisor has contradicted Donald Trump over tariffs on China, saying US consumers are paying for the trade war.
Larry Kudlow, the director of the National Economic Council, spoke on Sunday about Trump’s latest escalation of duties, “Both sides will pay. Both sides will suffer on this.”
Trump raised tariffs from 10% to 25% on $200 billion of Chinese imports last Thursday, and threatened to impose charges on the remaining $325 billion.
The pressure failed to shift China, who have called for revisions of a draft text on trade. Talks ended in Friday in Washington with no advance, and Beijing has said it will retaliate, albeit with specifying measures.
Trump has waged a Twitter campaign declaring that the breakdown and “BIG TARIFFS” are positive, as the US Government will make $100 billion from the duties.
He continued the unsupported claims with the proposal that the Federal Government will buy agricultural products that had been destined for China, “and ship it to poor & starving countries in the form of humanitarian assistance”.
Trump did not explain the impact on a Government debt already at an unprecedented level after his December 2017 tax cut package of $1.5 trillion. Nor did he recognize the impact on manufacturers and consumers from higher prices for Chinese imports.
Kudlow was careful in his rebuttal of Trump, trying to portray short-term tariffs as a lever to get a deal with Beijing:
“You’ve got to do what you got to do. We have had unfair trading practices all these years and so in my judgment, the economic consequences are so small that the possible improvement in trade and exports and open markets for the United States, this is worthwhile doing.”
Mr. Kudlow said Trump could meet Chinese President Xi Jinping of China at the G20 summit meeting in Osaka, Japan next month.
Heading for a Downturn?
But Trump continued to undercut his advisor by hailing a long-term trade war. He tweeted on Sunday evening:
We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate. 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…
— Donald J. Trump (@realDonaldTrump) May 12, 2019
Trump tipped off a wider motive — his campaign for re-election in 2020: “China is DREAMING that [Democratic candidate] Sleepy Joe Biden, or any of the others, gets elected in 2020. They LOVE ripping off America!”
Economists project that the latest tariffs will not put the US economy into recession, but it will hurt economic growth, possibly with a sharp downturn.
Fueled by the tax cuts and defying the Government deficit, US GDP rose 3.2% in the first quarter of 2019.
However, tariffs on China, the European Union, and other countries reduced income of American consumers by $4.4 billion each month through November, according to one study. That cost of $419 per household over a year will rise to $800 with the latest round of duties, said Columbia University economist David Weinstein.
Last week’s tariff rise could take 0.25% to 0.35% off GDP over six months. If a 25% charge is imposed on the remainder of China’s products, another 1% reduction is expected.
Analysts at the Tax Foundation say the cost of tariffs and Chinese retaliation will more than cancel out all the economic benefits of the December 2017 tax changes.
The latest tariffs raise the cost of products from computers to toilet paper, dog collars, Christmas tree lights, and mattress supports.
Of the remaining Chinese products, about two-thirds are consumer goods including toys, bicycles, and iPhones.