Former IMF Economist Discusses Challenges Of Zero Tariffs
AILSA CHANG, HOST:
All right, let's take a step back now and examine something else President Trump said yesterday after his meeting with the European Commission president.
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PRESIDENT DONALD TRUMP: We want to further strengthen this trade relationship to the benefit of all American and European citizens. This is why we agreed today, first of all, to work toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods. Thank you.
CHANG: Yes, you heard that right - zero tariffs. This is not the first time the U.S. has pursued removing tariffs between the two economies. And joining us now to talk about the goal and the challenges of getting to zero tariffs is Simon Johnson. He's a former chief economist at the International Monetary Fund, and he is now at MIT. Welcome.
SIMON JOHNSON: Nice to be here.
CHANG: So Republicans and Democrats have long been in favor of reducing tariffs between the U.S. and European Union. Can you just first explain; why are there still tariffs between them?
JOHNSON: Well, you have to remember we're living in a trading system that was created a long time ago. There were tariffs a hundred years ago. They were brought down after World War II. It's been a long, difficult process. Republicans and Democrats don't agree on very much, and not all of them are on board with lowering tariffs. But over a 50-year period, administrations from both parties have pushed for lower tariffs and lower tariff barriers with many countries, including with Europe.
CHANG: And just to make it clear, the tariffs right now between the U.S. and the EU are quite low.
JOHNSON: That's right. That's right. It's been one of the great success stories of the postwar trading era, although obviously there are still some barriers, including these non-tariff barriers like rules and regulations about what kind of food you can sell in different markets.
CHANG: OK. Is getting to an absolutely zero-tariff reality or a nearly zero-tariff reality between the U.S. and the EU actually possible?
JOHNSON: Yes, you could do that. The EU itself is a trading arrangement. Obviously it's a political union of sorts now. But the basis of it was a customs union lowering tariff - tariffs, lowering our barriers. There are zero tariffs, zero restrictions on trade within the European Union. So could we be become more integrated with Europe - yes. Those - they're rich countries. They're highly productive. They produce similar things to what we produce. We sell them cars. They buy our cars. We buy their cars. It could be - work just fine with zero tariffs.
CHANG: But what about the political realities? I mean, what about the U.S. steel industry, farmworkers, all these constituencies that President Trump says he wants to protect? He has to signal that he's trying to protect them. How do you negotiate around those political realities even though economically it could work in theory?
JOHNSON: Oh, that's why it's taken 60 years to get to this point. Look; agriculture's a different matter. And Mr. Trump definitely didn't say yesterday he was lowering tariffs and restrictions on agricultural trade to zero. So be very clear about that. And the Europeans don't want that either. So agriculture is in a different...
JOHNSON: ...Is in a different category. The, you know, various unions and various other people are concerned about imports, but they're mostly concerned about imports from low-wage countries such as China. So that's a whole different...
JOHNSON: ...Conversation. Europe is high wage, high productivity. They sell us similar goods to what we sell to them. And that's a very different basis for trade. A lot of companies are highly integrated across the U.S. and the European Union, including the U.K. at the moment. So that is a very different kind of a category for trade.
CHANG: As we've said, this is not the first time an administration has talked about zero tariffs between the U.S. and the EU. The Obama administration tried to work out a partnership with the EU to remove almost all tariffs as well. Is what President Trump suggesting now all that different from what the Obama administration was trying to do with the EU?
JOHNSON: No. It's actually exactly the same I think. And it was a curious omission, perhaps, but not - fairly obvious why they would omit the fact that what - the announcement yesterday was very much building on and will build on what the Trump - what the Obama administration started in 2013. It became known as the Transatlantic Trade Investment Partnership or T-TIP.
JOHNSON: Right. And the goals of T-TIP were exactly the goals stated yesterday by Mr. Trump and by Mr. Juncker, the president of the European Commission.
CHANG: All right, that's Simon Johnson of MIT's Sloan School of Management. Thank you very much.
JOHNSON: Thank you.
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