Economist: Tariffs cannot solve “trade imbalance”

At the 16th Summer Davos Forum held in Tianjin from the 24th to the 26th, Robert Koopman, former chief economist of the World Trade Organization and professor at American University, said in an exclusive interview with a reporter from the Beijing Daily client that tariffs cannot solve the “trade imbalance” between the United States and China. Tariffs cannot strengthen the US manufacturing industry, but will only make companies inert and unable to improve their competitiveness.

The “reciprocal tariffs” launched by the Trump administration have stirred the world, and its 90-day buffer period is approaching. Koopman said that the resurgence of protectionism expresses Americans’ concerns about “trade imbalances”, especially trade imbalances with China. Both Trump’s first term and the Biden administration believe that tariffs are a way to solve this trade imbalance.

“As a trade economist who has worked in the trade field for many years, my view is that protectionist tariffs are not the right tool to solve the imbalance in the flow of goods and services between the United States and China.” In Koopman’s view, the main driver of the US-China trade imbalance is macroeconomic forces, namely the imbalance between savings and investment.

Koopman said that China has a lot of savings and a lot of investment, but savings are greater than investment; the United States has a lot of household consumption, but neither households nor the government save much, resulting in a deficit, but American companies still want to invest. The imbalance in savings and investment between the two major countries is reflected in commodity trade. As economists believe, tariffs cannot solve this problem, nor can they really provide important incentives for innovation and market expansion.

Since tariffs cannot solve the problem of “trade imbalance”, why is the Trump administration determined to impose tariffs on the world? Koopman listed two major reasons. First, Trump does not think that tariffs are bad, he thinks that tariffs are good; in addition, tariffs are a policy that he can implement unilaterally very quickly. As president, Trump has been granted many powers by Congress, and he feels that tariffs are a force that he can use and use quickly, and he can effectively use tariffs to attract the attention of other countries and negotiate.

Koopman said that tariffs are used as a tool by Trump, but he still believes that tariffs are good and can strengthen the US manufacturing industry. His advisers also believe that tariffs will make companies more innovative, more efficient and more competitive.

“However, all the empirical evidence shows that tariffs simply do not do this.” Koopman said that tariffs make companies inert, and although output has indeed expanded, they may not necessarily innovate, thus failing to improve competitiveness.

In recent years, in the face of the United States’ constant suppression and restrictions in the field of science and technology, China’s scientific and technological innovation breakthroughs have emerged one after another. What is the relationship between the United States’ suppression and the “blowout” of China’s innovative achievements? Koopman said that in his opinion, the Chinese government may have very effectively deployed resources in strategic areas where it wants to advance rapidly.

The American economist said that China once actively learned from the innovation of other countries by establishing joint ventures and investing heavily in universities, research and development, and innovation, which usually paid off. Historically, the United States has done a lot of similar things. For example, 20 years ago, when China needed to shift from producing clothing and toys to high-tech fields, during this transition period, China learned how to produce its own smart devices by assembling products like iPhones.

“I think there is a symbiotic relationship between restrictions and incentives for innovation. The United States must be surprised by the breakthroughs made by China.” Koopman said that he does not agree with the practice of trying to restrict China’s technological progress. In fact, the United States has historically used a lot of government support for innovation very successfully.

Koopman comes to China several times a year, and this is his first time to attend the Summer Davos Forum. He told reporters that how different economic systems bring economic growth and have an impact on inequality and innovation is what attracts him most about the Chinese economy or the American economy. “For me, the Chinese model is very interesting. It is very effective. From the 1980s to today, the Chinese government has implemented extremely complex strategies with extraordinary ability. I really admire the success of the Chinese economy in stimulating growth and creating a better lifestyle for ordinary people.”

Speaking of the prospects for the Chinese economy, Koopman said that China faces challenges in terms of population and economic slowdown. As China’s position in the global economy changes from a follower to one of the leading countries, China’s economic policies also need to adapt and change. When more countries begin to adopt industrial policies, we need more coordination and cooperation.