Trade War's Effect On The Economy NPR's Lulu Garcia-Navarro talks with Randall Kroszner, a former governor for the Federal Reserve, about why the U.S. economy has remained relatively healthy despite the trade war with China.

Trade War's Effect On The Economy

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


The U.S. and China inked a preliminary trade deal this past week. And while there is doubt that it actually does anything to change the status quo, it may signal an easing of tensions between the two giant economies. Even so, the tariff war continues - a war that has cost American consumers and businesses tens of billions of dollars. But why isn't the U.S. economy in worse shape because of that?

We are putting that question and others to Randall Kroszner. He is a former governor for the Federal Reserve, and he joins me now on the line. Welcome.


GARCIA-NAVARRO: First, I'd like to get your reaction to what was signed this week.

KROSZNER: So I think it is a first step towards a long, long process of trying to regularize relationship between the U.S. and China. But I think it really is only a first step and, really, a pretty modest step.

GARCIA-NAVARRO: Yeah. An editorial in Politico Magazine called the deal almost a complete failure that, at best, modestly revises the status quo. It also said the only clear winner from the past two years is China. Beijing has taken the measure of the United States and concluded that less economic engagement with America is in its self-interest. Your thoughts?

KROSZNER: I think that's going a bit too far. I mean, if you look at the agreement itself, the Chinese made a number of concessions - for example, promising to buy significantly more U.S. goods - and the U.S. made virtually no concessions.

GARCIA-NAVARRO: I want to step back for a moment because the trade war does pretty much continue, and there were dire predictions in some quarters about how this trade war would hurt the economy. Has it?

KROSZNER: If you look at trade as a percentage of U.S. GDP, it's not that big. It's much bigger for China. It's much bigger for many other countries - for example, Germany. And China is an important player in U.S. trade. It's the largest importer to the U.S., or at least one of the largest. But when you think about as - you know, trade is a relatively small fraction of GDP. China is a fraction of that. And then you put 25% tariffs on that. You get a fraction of a fraction of a fraction. And so that's relatively small in terms of the U.S. economy. That doesn't mean that some sectors that are directly affected aren't feeling a lot of pain, and they are.

GARCIA-NAVARRO: But as these rounds of tariffs kept coming - and not just on Chinese goods but, for a time, on steel and aluminum from Canada, Mexico and the European Union - we know that this cost gets passed onto the U.S. consumer. So why haven't we seen dramatic price hikes or inflation?

KROSZNER: Well, in many cases, some of the people who are buying this are absorbing some of those costs. They're not passing all of them on. So that's why there's some pain in some of these sectors. Not only may they be selling less, but they're absorbing some of this, reducing their profits.

GARCIA-NAVARRO: Over time, will this equation change if this continues in this way?

KROSZNER: So I don't really see any settlement coming soon. And I think this is not something that's unique to the Trump administration. I think if you look at many of the leading Democratic candidates, they have adopted a position towards trade and a position towards China that is very similar to the president's. And so I think this is going to be something that will be ongoing regardless of who is in the White House going forward.

GARCIA-NAVARRO: Randall Kroszner is a professor at the University of Chicago and the Booth School of Business and a former governor for the Federal Reserve. Thank you very much.

KROSZNER: All right. Thank you very much.

Copyright © 2020 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.