Eliminating tariffs on goods at the height of the trade war would help reduce inflation in the United States, former Treasury Secretary Jacob Lew told CNBC on Tuesday.
But there is currently “no political space” to do so, he told CNBC’s “Street Signs Asia”.
“I think the United States and China have deep differences. I never thought it should be just about negotiating the exchange of one good or another from one side or the other. the other. It should be a level playing field, ”Lew said. . He was Secretary of the Treasury from 2013 to 2017 during the Obama administration.
He continued, “I thought from the start that tariffs were an ineffective way to deal with their attacks on American consumers. And right now, with inflation being an issue, reducing tariffs would actually reduce inflation in the United States. “
Relations between Washington and Beijing deteriorated in 2018, when the Trump administration imposed tariffs on billions of dollars in Chinese goods and Beijing retaliated with similar punitive measures, dragging the two sides into a trade war. prolonged.
U.S. tariffs on Chinese products averaged 19.3 percent on a trade-weighted basis at the start of 2021, while Chinese tariffs on U.S. products were around 20.7 percent, according to data compiled by the Peterson Institute for International Economics think tank earlier this year.
Before the trade war, U.S. tariffs on Chinese products averaged 3.1 percent at the start of 2018, while Chinese tariffs on U.S. products were 8 percent, the data showed.
Referring to the tariff reduction, Lew said: “The two leaders I think need to create political space in our two countries for these issues to be issues that you can move on and make progress on, otherwise we will stay where we are. “He’s getting worse. I think we can do better.”
U.S. businesses bear most of the financial burden of the high tariffs imposed at the height of the U.S.-China trade war, according to a Moody’s Investors Service report earlier this year.
The rating agency said US importers were absorbing more than 90% of the additional costs resulting from the 20% US tariff on Chinese products. This means that U.S. importers pay around 18.5 percent more for a Chinese product subject to that 20 percent duty rate, while Chinese exporters receive 1.5 percent less for the same product, according to the report.
But Lew told CNBC it’s likely that “a lot of the inflation we’re seeing will spill over.”
“I don’t think anyone is predicting hyperinflation,” he said. “But I think there has been a bit of undue nervousness about inflation. And frankly, the public reaction to inflation is very strong.”
But Lew warned that policymakers need to be cautious and ensure that measures used to tackle inflation do not slow the economy to the point of restraining growth.
– CNBC’s Yen Nee Lee, Jeff Cox contributed to this report.