U.S. President Donald Trump’s tariffs on China could backfire and hurt U.S. consumers and companies instead, with over 2.5 million U.S. jobs relying on trade between the world’s top two economies, the chairman of the American Chamber of Commerce in China said.
Furthermore, trade with China brought $600 billion to the U.S. in 2017 and led to $500 billion worth of investments in both economies, William Zarit, chairman for the American Chamber of Commerce in China told CNBC.
Speaking on “Squawk Box” on Thursday, Zarit said: “We have to keep in mind that these are the two largest trading countries in the world, we are very intertwined, and we rely a lot on each other for economic benefit.”
“Tariffs are a blunt instrument and there will be a lot of, what we feel is, counterproductive results actually hurting U.S. consumers and U.S. companies,” he added.
Beyond that, the escalating trade threats could hurt the United States’ international reputation, according to Simon Baptist, global chief economist at the Economist Intelligence Unit. Chinese President Xi Jinping, meanwhile, could benefit politically from the ordeal, Baptist said.
“By responding to the U.S. and sticking within World Trade Organization parameters, [China] look good domestically, and they look good internationally. It really makes the U.S. look like the aggressor.”
A better solution is to focus on reciprocal treatment by opening up both economies for parallel export and investment, Zarit said.
Additionally, tariffs may change the business environment in China for U.S. companies, and many of the chamber’s members are concerned about retaliation from Beijing, according to Zarit.
Uncertainty about what will happen has roiled markets — and that could eventually drag down the wider economy, Baptist said: “If sentiment on Wall Street means that the stock markets fall by another 15 or 20 percent, then I think that would be the thing that tips the U.S. economy over.”
But even if tariffs do end up having some short-term negative effects on the U.S. economy, Trump is willing to accept that to fix what the White House sees as long-term problems, Baptist said.
“Nationalism has been on the rise in both countries and I think both leaders will try and paint this as standing strong against a foreign adversary,” the economist told CNBC.
One of the core complaints the White House has about the U.S.-China relationship is about the alleged Chinese theft of American companies’ intellectual property.
While the U.S. shouldn’t begrudge China for making strides in the IT field and becoming capable of developing its own technology, tensions are bound to arise where intellectual property is concerned, according to Zarit.
When successful Chinese products are “based on IP that was taken from U.S. companies,” and “often times, the technology is developed with a lot of state support, preferential loans, and domestic protection,” then tensions are sure to arise, Zarit said.
One way to overcome the issue would be to focus on “Made in China 2025,” an industrial policy plan that China is rolling out, which promises state subsidies, preferential loans, and protection of the domestic market, for Chinese companies. The policy is only applicable to Chinese companies currently, but Zarit argued that it could go a long way to mending trade relations if it were opened up to foreign participation.
