Tariff War Against China May Backfire for the US: Rattner

On Thursday, The New York Times published an opinion piece stating that the United States' new protectionist stance in the international trade will only raise prices, limit consumer choices and risk growth.

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The U.S. tariffs on Chinese electric vehicles and other products are mainly aimed at pleasing voters rather than economic considerations, wrote Steven Rattner, who served as counselor to the U.S. treasury secretary in the Obama administration.

With Americans unsatisfied with the state of the economy, Rattner said, "eyes often turn to the growing number of inexpensive imports, particularly from China," in a search for scapegoats. Tariffs raise prices and lead to more unemployment rather than less, he said.

From the start of 2018 to the start of 2020, prices of tariff-targeted goods rose by about 4 percent and the prices of non-targeted goods fell one percent, wrote Rattner, citing a Goldman Sachs analysis.

"Numerous studies have found that those higher prices were borne almost entirely by American companies and consumers -- not by Chinese exporters," he said, adding that a Tax Foundation analysis showed the Trump tariffs cost 166,000 jobs in the United States.

Reviewing the history of trade protectionism in the U.S., Rattner found that the tariffs, pitched as a means of protecting workers and farmers during a downturn, have often triggered a global wave of protectionism that exacerbated depressions and crippled global trade.

On the contrary, trade liberalization which sharply reduced tariffs, Rattner wrote, has "brought consumers in the United States and elsewhere less expensive and often superior goods, helping fuel strong economic growth and moderate inflation."

"Every student in an introductory economics course learns about David Ricardo's 200-year-old theory of comparative advantage: the idea that by specializing in the products that they can produce most efficiently and then trading with others, nations can be better off," Rattner said, adding that history shows that the U.S. government should be reducing trade barriers, not increasing them, and making the World Trade Organization work, not impeding it.