Tariffs detrimental to US, analyst says

US tariffs will be detrimental to the US and will not achieve their objective of thwarting Beijing, an expert on the Chinese economy says.

"The tariff approach is a mistake because US tariffs on imports from China are going to hurt Americans more than they're going to put pressure on the Chinese government," said Andy Rothman, a consultant for the China market and founder of Sinology LLC, in an online discussion Wednesday about the economies of China and the US, organized by the 1990 Institute, a nonprofit group.

US President Donald Trump initiated tariffs on Chinese goods in his first term and imposed further tariffs on China shortly after he started his second term.

China can handle tariff pressures for many reasons, Rothman said. For one, China's exports to G7 countries, including the US, have been dropping relative to all of its exports, Rothman said. He cited data that China's exports to G7 countries dropped to 28 percent last year from 48 percent in 2000.

"China has a lot of other markets to rely on, not just the United States," said Rothman.

In addition, China is no longer an export-led economy, said Rothman, because the export surplus contributed only about 1 percent of China's GDP growth on average in recent years. "It's not a trade-driven economy. China is increasingly, like the United States, a domestic demand-driven economy."

Rothman has a deep understanding of China. He visited the country for the first time in 1980 as a student, and began his 17 years of foreign service at the US State Department as a fresh diplomat in Guangzhou in 1984.

In 2000, he began to help institutional investors and companies understand China's changing economic environment. He lived and worked in China for more than 20 years before moving back in 2014, and has witnessed China's incredible growth in the past decades.

Services on rise

Rothman used data to show that China's economy is less driven by manufacturing. "The contribution of manufacturing to Chinese growth has been declining while services have been on the rise."

While China is facing some economic issues, it alone is forecast to account for about 20 percent of global economic growth for this year and next, said Rothman.

He said Chinese household bank deposits have increased by 90 percent since the beginning of the COVID-19 pandemic.

"These bank deposits include a lot of very small businesses who don't have a separate corporate bank account," Rothman said. "That is a net expansion equal to about $10 trillion.

"Once confidence comes back, there's a lot of money liquidity in the financial system in China that can be used to get the domestic demand part of the story going again," Rothman said, adding that China held a meeting with leading entrepreneurs last month to boost confidence.

"This will be the strongest response that the Chinese government can make to any tariffs coming from Washington," Rothman said. "The tariffs are not likely to put a lot of pressure on the Chinese government to change policies, to do whatever it is that President Trump wants."

He said Trump, in his first term, asked China to cooperate on fentanyl and got cooperation from China.

The Chinese government has taken measures to crack down on and regulate illegal and criminal activities involving fentanyl-related substances.

Nowadays, Rothman said many US citizens think the US helped bring China into the global world, and it hasn't been beneficial for the US. But that is a misconception, he said.

Engagement with China "has actually been really good for most Americans", Rothman said, sharing a graphic showing that since China joined the World Trade Organization, US exports to China are up 646 percent, whereas, to the rest of the world, they're up 171 percent.

Rothman said US agricultural exports to China have increased by 1,200 percent to China over that time, versus 174 percent to the rest of the world. "If you look at studies by academics by the Federal Reserve Bank, you can see the general conclusion is that imports from China have kept inflation low, especially for working-class families who tend to spend a higher percentage of their disposable income on tradable goods," he said.

mayzhou@chinadailyusa.com