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Politicians who champion trade restrictions on China are in for a rude awakening, Kenneth Rogoff warns.
According to the Harvard professor, barriers on free trade with the Asian powerhouse are a recipe for economic fallout. He sees the results being price increases in the US, as well as political backlash.
That's because efforts to curb China's growing influence — although framed as an advantage for US workers — disrupt many of the free-trade gains enjoyed by Americans, Rogoff explained in Project Syndicate.
"While competition with Chinese producers has adversely affected some manufacturing jobs, free trade has undoubtedly created more winners than losers," he wrote. "Moreover, low-income US consumers have been among the biggest beneficiaries of low-cost Chinese imports."
But in today's election cycle, higher barriers on China are a trending theme on both sides of the aisle.
Just months ago, President Biden announced that tariffs would rise on $18 billion worth of Chinese advanced tech products, including solar panels, batteries, and electric vehicles.
Donald Trump, the Republican candidate, has promised even steeper restrictions — while he would see a universal 10% tariff applied on all US imports, those coming from China could face rates as high as 60%, he's pledged.
The rising scrutiny is the byproduct of bad experiences from the past, Rogoff said: by raising restrictions, Washington is trying to avoid a repeat of the "China Shock."
"The prevailing belief among policymakers is that the surge of Chinese imports into the US market during the 2000s hollowed out America's manufacturing base, making the kind of rapid military build-up that enabled the Allies to win World War II all but impossible," Rogoff wrote.
He continued: "In US policy circles, the 'China Shock' is often portrayed as a massive error that devastated towns across the Rust Belt and led to a sharp increase in inequality."
The opinion isn't limited to politicians, but has been voiced on Wall Street as well. After Biden's declaration of new tariffs in May, Nobel-winning economist Paul Krugman characterized the move as a US refusal to take on another China shock.
But Rogoff warns that the alternative is also painful. Few global markets offer prices as low as China's, and the US still depends on China for important goods, such as medical supplies, he said.
The country also has a massive lead in key industries, such as EVs. Plans to boost domestic production by blocking these imports will be extremely difficult to pull off, Rogoff argued.
Consider also that tariffs are inflationary on their own, no matter the target. According to the nonpartisan Tax Foundation think tank, that's because higher import duties create a pullback in goods sold; as supply shrinks, even domestic products get pricier.
Still, Rogoff conceded that the US reaction is a response to Chinese provocations. In recent months, economists have called out China for flooding global markets with advanced tech products, a strategy Beijing is chasing to revive its own economy.
But that doesn't justify stricter barriers, Rogoff warns. Instead, both the US and China need to find a compromise that will allow both nation's to grow sustainably.
It's a sentiment shared by JPMorgan's chief Jamie Dimon, who separately called on Washington to embrace engagement with Beijing. Instead of conflict, tough competition should be touted, he said in May.
