U.S. Tariffs on China Missed the Mark, Economists Say
Singapore Management University's Yuan Mei and East Asian Institute's Chen Gang talk about where they see China's economy headed.
by Madeleine Sherer, National Press Foundation
Reports of China’s economic death are greatly exaggerated, say economists Yuan Mei and Chen Gang.
“It’s not [about whether] the Chinese economy is weak or not, it’s about how much China can buy from other parts of the world,” said Gang, deputy director and research fellow at the East Asian Institute of the National University of Singapore. “I do not think that China’s economy is going to collapse anytime soon … although the property bubble is really, really serious.”
China Shock: ‘We are Witnessing a Second Wave’
For decades, China has seen a major rise in merchandise exports, particularly compared to the U.S., Japan and the UK. Economists called the phenomenon the “China shock.”
“We observed the pretty sharp rise of U.S. spending on Chinese imports. From 1991 to 2007, for example, it rises from 0.06% to 4.6%,” said Mei, an assistant professor of economics at the Singapore Management University School of Economics. “During the same period of time, the working age employment in the manufacturing sector in the U.S. declined by a third.”
While China substantially cut into U.S. manufacturing, Mei told NPF International Trade Fellows they shouldn’t ignore other channels in which trading with China benefits the U.S.
“Imports of China would reduce consumer prices in the U.S. They are cheaper than locally produced, and China also provides more varieties,” Mei said.
From China Shock to U.S. Tariffs
Prior to 2018, the U.S. had a fairly liberal international trade policy, Mei said. But under then-president Donald Trump, tariffs on Chinese imports like steel and aluminum went up to 20%. A survey of American economists at the time unanimously agreed that the tariffs would not improve Americans’ welfare.
The tariffs were also largely ineffective, since many Chinese companies simply began manufacturing abroad instead. China actually saw a trade surplus overall in subsequent years.
“Despite all the trade measures … against the Chinese products over the past few years, China still managed to maintain its trade surplus at a very high level,” Gang said.
More recently, the U.S. has placed tariffs on electric vehicles made in China. Mei believes this is another misstep that will only make the processing of raw materials more expensive.
China’s ‘Secret Weapons’
Though Gang says China should import morer, he believes that the policy priority for China’s trade is “to maintain the trade surplus because more than 3 trillion foreign reserve is vital for the Communist Party’s legitimacy.”
Much of the discussion around China’s economy skews toward the dire as its workforce declines and manufacturing moves overseas into Southeast Asia. Still, Gang said that he sees reports of these economic woes as exaggerated. He spoke about how China is voluntarily moving their supply chains outside of China.
“They do want to move some of the supply chains to other parts of the world, especially Southeast Asia or Mexico, but not all. They want to retain the high-end manufacturing, including the research and development within China,” Gang said.
This allows China to refocus their domestic efforts on other parts of the manufacturing process.
“China has other secret weapons, including the new three: the electric vehicles, the solar panel, and the batteries. So I think the key question is to identify, what areas China are working on to further improve, to further boost its export, and to increase its trade surplus?”
Speakers: Chen Gang, Senior Research Fellow, Assistant Director at East Asian Institute, National
University of Singapore
Yuan Mei, Assistant Professor, Economics, Singapore Management University
This fellowship is part of an ongoing program of journalism training and awards for trade coverage sponsored by the Hinrich Foundation.
This video was produced within the Evelyn Y. Davis studios. NPF is solely responsible for the content.