01 Oct 2018

Channel NewsAsia Insight Episode 18: US-China Trade War

Transcript of interview with Danny Quah, Dean and Li Ka Shing Professor in Economics at the Lee Kuan Yew School of Public Policy.

13 September 2018

1.    What is protectionism?

We tend to think of wealth as gold. And if I am buying more from the rest of the world, they are getting my gold. I am, over time, having less and less gold. I think it’s that way of thinking that makes people protectionist.

I think the right image is: Look around yourself. Think about what you yourself produce. Because the truth of the matter is, if you want to be protectionist, you would have to get rid of all the things that you don’t yourself produce. That’s what protectionism really means.

2.      Will trade tariffs help level the trade deficit between US and China?

Trump has gotten obsessed with this idea that because he is running a trade deficit against China, somehow that’s “losing”. The two things need to be separated: unfair trade practices in the world—which we, as a global society, need to look at carefully—and the trade deficits, trade surpluses and trade accounts, which are something quite different.

If Trump’s idea is that, by raising tariffs against China, he can repair that trade deficit, that’s misguided. It’s completely the wrong thing to do, and what Trump is doing will probably worsen the trade deficit that America has against selected trading partners.

3.      What will trade tariffs actually do?

One way to think about trade tariffs against China, or any part of the world, is: It’s like when we get a new smartphone, and we want to put a screen protector on it, and an air bubble gets trapped in the screen protector, and we’re trying to stamp down that air bubble.

But what we end up doing is pushing the air bubble around to other parts of our screen. That’s what Trump will end up doing by raising tariffs against selected trading partners like China.

It’s going to be, ultimately, self-defeating. The world has, over the last century, benefited hugely from American innovativeness, from American technology. We need to move the world back to a situation like that.

Putting tariffs on selected economies is only pushing an air bubble in a screen protector around. It does not repair the ultimate problem, which is that America, right now, is trying to consume more than it’s able to produce.

4.      What should America be doing instead?

There is a different, more sinister interpretation of the political backdrop to this trade war. For a while now, scholars have been talking about how the world is in a period of power transition; that America, the undisputed global hegemon—leader of the world—for the last 70 years, is now being challenged.

It’s being challenged by the rise of Asia, and so the tectonic forces that are in play now actually go beyond the agency of individual countries. That the world is colliding in this way from these geopolitical forces would suggest an interpretation of the current trade war as simply being a symptom of a greater conflict that’s coming.

 

This transcript has been lightly edited for clarity. The full episode can be found at https://www.channelnewsasia.com/news/video-on-demand/insight/us-china-trade-war-10736066.