Arthur Laffer, who served on Ronald Reagan’s presidential economics advisory council in the 1980s, and Derek Scissors of the American Enterprise Institute, responded to news that President Donald Trump seeks to impose a 25 percent tariff on an additional $200 billion worth of goods from China. Stock shares in China and the U.S. dropped as much as 200 points on Thursday upon the news. When the White House previously asked the Office of the United States Trade Representative about the possibility of imposing a 10 percent tariff on $200 billion worth of Chinese goods,
Scissors said that China responded this spring by reducing the value of its currency, the renminbi, by 8 percent. “If you’re going to apply 10 percent tariffs,” Scissors said on NPR, “and your currency is getting 8 percent cheaper, you’ve lost most of the effect of the 10 percent tariffs.” Under Trump’s new plan, however, the tariffs would more than double in size. The U.S. has already placed 25 percent tariffs on Chinese goods worth $34 billion to punish China for what the Trump administration believes are unfair trade practices, such as forcing American companies to hand over valuable technology. China has since responded with measures of its own.
In an interview with Fox News, economist Laffer said on Thursday, that Trump’s tactics of threatening to raise tariffs in the service of a policy of eliminating tariffs has already had success with the European Union and Mexico. When Fox News show host Bill Hemmer asked Laffer whether Trump is “squeezing” China into a deal, Laffer said “I think that’s true. China is very vulnerable to the U.S. economy. They’ve had huge growth rates for 50 years, way higher than any other country. But even with all of that, their GDP per adult is still one-eighth that of the U.S. They are still a very poor and backward nation in many respects. And China can ill afford to behave badly now if they want to continue prosperity.” China’s economy no longer deserves te “free slack of protecting their domestic industry” and should thus be compelled to compete freely “like everyone else” including Japan.
In an op-ed published by the New York Times on Wednesday, Laffer joined Stephen Moore and Steve Forbes to declare that Trump may be on the verge of a win for free trade as did Ronald Reagan in the field of nuclear weapons. In “How Trump Could Be Like Reagan,” Laffer wrote: “Just as Ronald Reagan once pushed for abolishing nuclear weapons, President Trump should call for ending tariffs.”
“President Trump won a victory for freer trade last week when he and the president of the European Commission, Jean-Claude Juncker, agreed to find ways to lower tariffs and other barriers to each other’s exports. The outlines of the deal are still sketchy, but it calls for the Europeans to buy more American petroleum, soybeans and manufactured goods and for Mr. Trump to reduce his auto and steel tariffs.
“We were particularly heartened that Mr. Trump and the Europeans now have a handshake agreement to aim for zero tariffs on both sides of the Atlantic.
“This was Mr. Trump’s idea. The night before the agreement, he proposed in a tweet that “Both the U.S. and the E.U. drop all Tariffs, Barriers and Subsidies! That would finally be called Free Market and Fair Trade!” Amen.”
Both Laffer and Moore are advisors to the Trump administration. Forbes leads Forbes Media.
National security and trade concerns
Citing national security concerns, the Trump administration has added 44 Chinese entities to its export control list on Wednesday. In a direct challenge to the Asian giant's "Made in China 2025" policy, the Department of Commerce targeted key elements of China's expansionism, including air defense systems, semiconductors, aerospace, and satellite communications sytems. Among the eight companies and dozens of subsidiaries affected are the China Aerospace Science and Industry Corporation Second Academy – a research unit of the largest missile systems developer in China – and communications system manufacturer Hebei Far East Communication System Engineering. Research institutes that are part of the government-owned China Electronics Technology Group Corporation (CETC), which develops semiconductors, radar technology and microelectronic devices. Others affected include China Volant Industry, which exports and imports aerospace technologies, and China Hi-Tech Industry Import and Export Corporation.