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Op-ed: Tariff hikes are ‘bricks’ escalating tensions rather than ‘ladders’ leading to solution

By Zhong Sheng (People's Daily)    09:05, June 11, 2019

“The most effective protection to a consumer is free competition at home and free trade throughout the world,” said Milton Friedman, who received the 1976 Nobel Memorial Prize in Economic Sciences. The tips given by this American economist still enlighten today’s world.

The world history has confirmed that a cooperation leads to win-win results, while trade frictions have no winners. But some American politicians turned a blind eye to such economic rules, and neglected the facts that Chinese and US economy are highly complementary in structure and intertwined in interests.

They alleged that US “suffers loss” from the trade by claiming that “the US had been losing $500 billion a year on trade with China”, complaining that “the exporting of Chinese excess capacity gutted the upper Midwest of the United States” and growling that “the US had hemorrhaged millions of manufacturing jobs”.

They also preached that additional tariffs against China will benefit both the American economy and the public’s welfare, acclaiming that “it will rake in billions of dollars from tariffs imposed on Chinese goods”.

By making up such excuses, they packaged “the protection and improvement of welfare” into their “justified reasons” to provoke trade frictions, as well as the “fruits of victory” after wielding the tariff stick.

But will things really go like this?

There's never a pie in the sky. A shark-like capture gets nowhere in market economy. The rhetoric that “tariffs will bring in far more wealth to our country than even a phenomenal deal of the traditional kind” is no more than a self-deceiving lie.

Also, the so-called tones that additional tariffs will bring in more public welfare is nothing but a fictitious illusion.

“These higher tariffs are likely to create large economic distortions and reduce US tariff revenues,” warned a recent paper published by the Federal Reserve Bank of New York.

“Very high tariff rates can…cause tariff revenue to fall as buyers of imports stop purchasing imports from a targeted country and seek out imports from (less efficient) producers in other countries.” the report added.

Another survey indicated that Washington’s tariff war against its trading partners, particularly China, cost American companies and consumers $4.4 billion a month last year, and its incomes from tariffs were not enough to offset the losses suffered by consumers purchasing imported goods.

Larry Kudlow, director of the White House National Economic Council, also admitted that tariffs are not paid by the Chinese firms directly, and both China and the US will suffer consequences from the tariffs.

It’s also absurd to describe the tariff hike as a move to ensure the public’s livelihood. Wall Street Journal said in a previous report that US consumers are poised to take the hit from higher tariffs, as the affected would be a wide range of consumer products, and the higher prices would be expected from the decision.

Researchers from the University of Chicago and the Federal Reserve offered a more specific answer after using washing machines to tease out the costs of tariffs. The findings showed that the tariffs raised the price of the washing machines by 12 percent on average, and cost US consumers about $1.5 billion a year on washing machines and dryers, after the tariffs were applied in January 2018.

The American consumers have to spend $86 more on per unit of washing machines, and $92 more on each piece of dryer.

It means that the tariffs levied by the US will finally be taken by its importers, wholesalers, retailers, and the consumers at last.

A study commissioned by Tariffs Hurt the Heartland, a nationwide, grassroots campaign composed of over 150 trade associations from across industries, estimated that a tariff hike to 25 percent against Chinese imports would jeopardize nearly 1 million American jobs, and roil financial markets.

To sum up, what the additional tariffs bring to the Americans would be “nightmare” rather than “good news”, since the American consumers and firms will ultimately bear the costs.

Given the facts and strong opposition, the American politicians had to change their wording, and found a new excuse for escalation of trade frictions, namely “short-term pain, long-term gain”. As a matter of fact, the Americans will suffer pain in short run, but may not gain in the future.

The soybean growers, for instance, are now beset by how much to grow in this year and whether to sell the stocks at depressed prices, and what’s worse is that they are in front of the risks to lose the Chinese market.

According to them, they spent 40 years to build these markets, and will be difficult to recover if losing them.

Although frictions and disagreements emerged in China-US cooperation from time to time, it is undeniable that the two countries are witnessing unprecedented deep and broad cooperation. It also means that a win-win cooperation follows the trend of times, as well as the fundamental interests of peoples of the two countries and the whole world.

If the US insists on going against the trend of times for sake of its own interests, it will result in a lose-lose situation.

Tariffs war with China has hurt almost every segment of the US economy, Guardian commented, adding that the trade policy is a hot mess of conflicting goals-with few winners.

The tariff hikes are “bricks” thrown to escalate the tensions rather than the “ladders” leading to a solution. As time goes by, people of the two countries and the world at large will be aware of this conclusion.

(Zhong Sheng is a pen name often used by People’s Daily to express its views on foreign policy) 

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Hongyu, Bianji)

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