Larry Summers On Trade War
SCOTT SIMON, HOST:
The United States and China are trading volleys in what's become a real trade war. China announced $75 billion in retaliatory tariffs on the U.S. President Trump replied by increasing tariffs the U.S. had put on two classes of goods from China by 5% and ordered U.S. companies to start making products in the U.S., which he does not have the power to do.
We're joined now by former Treasury Secretary Larry Summers. He was also director of the National Economic Council in the Obama administration. Mr. Summers, thanks for being with us.
LARRY SUMMERS: Very glad to be with you.
SIMON: What's the danger or caution in this kind of trading tariff increases back-and-forth?
SUMMERS: That American workers are going to lose their jobs and see lower incomes, and that we're going to drift into a confrontation with China that will ultimately require us to spend more on the military, ultimately undermine our national security and ultimately make China less dependent on us and more assertive, vis-a-vis the United States. We are making grave errors here, whose consequences will be economic but go well beyond economics.
SIMON: Mr. Summers, what about the president's charge that both Republican and Democratic administrations back to George H.W. Bush made too many accommodations with China and that's cost American jobs and he's just trying to bring a long overdue equality to the trade relationship?
SUMMERS: He's got his facts mostly wrong. The Chinese trade surplus, for example, with the world, which is what all economists regard as the relevant test, has come down from hundreds of billions of dollars seven years ago to essentially zero today. Even if he had his objective well-framed, which he doesn't, his tactics are designed to fail. We're doing this essentially without allies, alienating all our potential allies.
We're so mercurial that no one could say yes to our demands because they would believe that we would instantly retrade them. We have backed off so many threats, whether it's NATO expansion or North Korea or many other things, so no one - or even quite recently, after the stock market fell on Chinese tariffs - that no one will believe our threats.
And we have so alienated the people in China that those most inclined to be sympathetic to the United States are now highly resistant to us. His strategy is close to stop, or I'll shoot myself in the foot. Its premise is that we can get a sadomasochistic cycle going and that somehow our sadism to China will exceed our masochism to our own economy and this will work out best.
SIMON: Let me...
SUMMERS: I wouldn't bet - I wouldn't bet - I wouldn't wait for China to capitulate. I think things are moving the other way.
SIMON: Doesn't the United States have a strong hand to play with China, though? We've got about 40 seconds left.
SUMMERS: We could have a strong hand if we knew what we wanted, if we enlisted allies, if it was credible that we would say yes, but - and we would keep a deal if we made it. But as the people who withdrew from PTT (ph), as the people who've not carried out on threats, I don't think we're playing a hand strongly. And, therefore, we're in - we're not going to win, and we're going to do a lot of damage to our economy in the process. We've lost trillions of dollars of projected company profits because of this effort.
SIMON: Former Treasury Secretary Larry Summers, thanks so much.
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