If the US wanted an easy and quick way to boost economic activity and employment in response to the destructive economic damage of the coronavirus, there is one available. Unfortunately it doesn’t look like the Trump administration will grab it.
For weeks there have been reports in the US media that the administration was at least discussing the possibility of lifting tariffs on imports as a way to reduce costs to businesses and consumers and, assuming quid quo pros from other countries, boosting exports.
Yet while it does appear that Trump will allow some companies to defer their tariff payments for 90 days, directing US agencies to delay collecting the tariffs, the proposal looks quite narrow in scope and doesn’t include the tariffs that would provide the biggest impact on the US economy: The tariffs averaging nearly 20 per cent on $US362 billion ($590 billion ) of goods imported from China.
The proposed tariff relief won’t apply to China’s exports.Credit:AP
The temporary relief being contemplated seems to be focused on "most favoured nations", which would affect imported goods including some apparel and footwear and, perhaps, light trucks. The administration has already excluded some health products needed to combat the pandemic from tariffs.
While there are reports that Trump has signed off on the plan, there is no certainty the proposal will go ahead. There is significant pushback from US domestic manufacturers and their industry associations.
Treasury Secretary Steve Mnuchin has made it clear that general tariff relief is not being contemplated and, indeed, it is inconceivable that Trump, in an election year, would roll back the tariffs on China and effectively concede that his much-vaunted trade war has damaged – and is still damaging – the US economy.
Nevertheless, being prepared to remove most, if not all, of the tariffs the US has imposed during the Trump administration’s tenure – and seeking reciprocal actions from other governments – would provide a meaningful boost to the US and global economies as they battle the destructive consequences of the coronavirus.
Trump’s protectionist and nationalistic approach to economic policies and international institutions makes it unlikely that the US will resume its role as the global leader in a crisis. "Making America Great Again" has diminished its global influence even if it wanted to exercise it.
The proposal to suspend some tariffs, albeit for only 90 days, isn’t designed to help alleviate the steep global economic slump that is unfolding.
It’s being proposed to help the US economy and its businesses' and households’ cashflows but, in the process, is a also tacit admission (which Trump would never make explicit, even if he recognised it) that tariffs do damage those who impose them.
'Making America Great Again' has diminished [America's] global influence even if it wanted to exercise it.
Despite Trump’s statements that trade wars are good and easy to win and that it is China that has been paying the duties on its exports to the US, all the analyses of the trade war have concluded that it is US companies and consumers that have footed the bill.
That’s either through the cost of the duties themselves, or from higher prices as goods that used to be manufactured in China have been diverted to other higher-cost producers elsewhere in Asia or South America.
The US Congressional Budget Office has estimated that the cost to the US economy of tariffs is about 0.3 per cent of real US GDP, reducing consumption by 0.3 per cent, investment by 1.3 per cent and real income per household by $US580. Exports and imports would both be lower.
In a $US21 trillion dollar economy, those are substantial numbers.
Trump is never going to concede that his trade wars were misconceived. There is also a fear within the administration that easing up on China just as it starts to re-emerge from the pandemic would – given that infections and deaths in the US are still soaring and the economic damage is intensifying – accelerate China’s recovery and confer long-term economic and strategic benefits to a rival for America's global economic and geopolitical dominance.
China, given it was first to head into the crisis and appears likely to be first out, will already gain some advantages if it manages to contain the outbreak, and is seeking to leverage them through a re-writing of the history of the pandemic and via "soft" diplomacy.
How far it can exploit that opportunity is an open question. The reality that it is only just starting to re-open a damaged economy as much of the rest of the world has closed or is closing theirs puts some limits on the upside.
The general resentment over China’s decision to try to keep the world from knowing what was happening in Wuhan – a decision that may cost hundreds of thousands of lives because of the delayed responses it caused outside of China – will be another factor.
Moreover, China went into this global health and economic crisis in poor shape, with an economy with dangerously high debt levels and enormously wasteful deployment of capital within its state-owned enterprises.
Unlike the post-financial crisis period, when China’s massive stimulus plan helped the rest of the world remain afloat and turbo-charged its own economy for a decade, its capacity to take full advantage of the post-pandemic environment is constrained to some degree by its own vulnerabilities.
That won’t, of course, stop it from trying to maximise any economic and geopolitical advantages it can extract from the gradual re-opening of its economy even as the damage to most developed economies continues to worsen.
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