Trump Administration To Postpone Some China Tariffs

Aug 14, 2019
Originally published on August 14, 2019 9:57 am
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DAVID GREENE, HOST:

For months now, President Trump has insisted that the tariffs he's imposed on imports are good for the U.S. economy, bad for China's economy; nearly all economists say otherwise, and lately so has the stock market. It plunged when Trump said he was going to impose another round of tariffs effective September 1, this time on Chinese-made smartphones, laptops, toys, among other products. Yesterday the president changed his mind and said he's delaying some of those new tariffs until December 15. His explanation? He said he wanted to avoid tariffs going into the Christmas shopping season. He doesn't want U.S. consumers to feel the pain. And the stock market cheered.

Let's talk this through with David Wessel. He's director of the Hutchins Center at the Brookings Institution. David, welcome, as always.

DAVID WESSEL: Good morning.

GREENE: So did you take the president's words yesterday as a reversal, after so long saying that tariffs wouldn't hit the U.S. economy badly - now he's saying he wants to protect U.S. consumers from tariffs?

WESSEL: Yeah, I did. I mean, look - basically, we know some prices have been rising because of the tariffs. Furniture prices have gone up quite a bit. But I think that many of the tariffs have been imposed on things that businesses put into other products - steel, chemicals and parts. And that means that it wasn't so obvious that tariffs were raising prices.

But I think the president must have realized that this new round, particularly coming into the important Christmas shopping season, was going to hit some very popular consumer goods like, as you said, smartphones. And that probably would have led to some very visible price increases that were tied to the tariffs, with some possible political ramifications for the president. And of course, as you noted, the stock market was unhappy with this ratcheting up of tariffs, and that probably influenced the president's reversal as well.

GREENE: But tariffs have fit into a larger argument that we've heard from the president and some of his advisers. I mean, they've said that the combination of the big tax cut in 2017 and the tariffs are the reason that the U.S. economy has been doing well and that unemployment has remained low. Is there evidence to back that up?

WESSEL: Well, the economy has been doing pretty well, and, yes, the tax cut is part of the reason. If you give people and businesses a lot of money, they'll spend some of it, and that gives the economy a lift. So a measure that we calculated at the Hutchins Center at Brookings shows that local, state and federal government tax and spending policy provided more of a boost to the economy in the second quarter than any quarter since 2010.

But let's remember - the proponents of the tax cut said the point wasn't to boost near-term demand; the post was - the point was to give businesses more incentives to invest so that we'd have higher long-term economic growth, and that simply hasn't materialized.

GREENE: What about the tariff part of his argument? I mean, he says that tariffs on imports would lead U.S. companies to bring jobs back to the United States, helping the economy. Is that happening? Is there a sign of that happening?

WESSEL: Right. So two arguments he makes for the tariffs - one is it's a bargaining tactic with China. That hasn't proved very well. But the other is that, yes, that it's going to bring jobs back, and some jobs are coming back. A trend that began before the tariffs is wages rose in China, and some American manufacturers figured out how to automate so much that labor is a shrinking part of their costs, so producing more helps - is cheaper and quicker.

So, you know, one outfit called the Reshoring Group (ph) estimates that about 145,000 factory jobs have come back to the U.S., both because of people shifting production and foreign investment here. But more than half of that was before the tax and tariffs. And look - a lot of the production is being shifted to Vietnam and other places rather than China because - as manufacturers try and avoid the tariffs.

GREENE: David Wessel, director of the Hutchins Center at the Brookings Institution, frequent guest on our program. David, thanks, as always.

WESSEL: You're so welcome.

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