SAN FRANCISCO (KCBS RADIO) – When President Donald Trump’s universal 10% levy against all countries went into effect early Saturday, China had already hit back with a 34% tariff on U.S. goods. Where is all this headed?
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Barry Naughton, economist and chair of the Chinese International Affairs School of Global Policy and strategy at UC San Diego, joined KCBS Radio this week to take a peek into what we might be expecting.
“I think the important thing to recognize here is that this event of China retaliating is very important, but it’s not so much important in itself as it is in terms of what it signifies,” he said. “What it signifies is that China is the first country to hit back. But it’s definitely not going be the last country, and so this is a signal that something is happening.”
According to Naughton, China’s move could open the floodgates to new tariffs from around the world. ABC reported this week that Thursday has already been the worst day for the stock market since June 2020, during the early days of the COVID-19 pandemic. MarketWatch reported that the stock market has wiped out nearly $10 trillion in value since Trump was inaugurated in January.
“I think it’s really important to stress – you know, right at the beginning – there is a potential reasonable set of tariff policies,” Naughton said. “I wouldn’t necessarily agree with them, but you could say, you know, the Trump administration could say we want to impose 10 percent tariffs on everybody, okay, plus some additional tariffs on bad actors.”
However, he said that isn’t what happened during Trump’s “Liberation Day” tariff announcement.
“The U. S. imposed 10% on everybody and then a complete set of fantasy reciprocal tariffs that don't make any sense at all,” Naughton added. “And so, everybody is reeling.”
“Fantasy” tariffs are a reference to the chart that Trump brought out during his Wednesday announcement. Naughton said that the Trump administration didn’t actually use tariffs from other countries to calculate its reciprocal tariffs.
“When they thought the country was a bad actor, they used the size of the U.S. trade deficit with that particular country and literally made up a number that they thought would equate to the amount of tariff it would take to rebalance trade with that country,” said Naughton.
He used Singapore as an example. According to Naughton, that county has zero tariffs on the U.S. but still got hit with reciprocal tariffs due to the trade deficit calculation.
Now, he said “other countries are going to start standing up too, because they have their own domestic political pressures, and they have pride.” With the tariffs from both the U.S. and more potential tariffs from abroad, it looks like prices are going to get higher for American consumers – Naughton likened the situation to the 1970s recession triggered by high energy prices, since back then prices went up even as the economy went into a recession. Additionally, he said the tariffs threaten to impact the complicated global supply chain.
Trump has said that he believes the tariff plan will both prevent illicit drug trafficking, cut down illegal immigration and help bring more jobs back to the U.S. However, Naughton doesn’t think that’s where things are headed.
“One thing you've got to say about Donald Trump is he’s been a very consistent advocate of tariffs goes back 30, 40 years ago,” said Naughton. “I think he wants to recreate an emotional… version of a U.S. in the 1950s, where, you know, happy workers went to work in factories, where they put together machinery and… and clothing and, you know, that world is not coming back.”
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