Trade Wars Update: Former WTO Head Says Tariffs Having Negative Effect On US Economy

President Trump’s tariffs are having a negative effect on the U.S. economy, former World Trade Organization Director General Pascal Lamy said Thursday.

In an interview on Bloomberg TV, Lamy said levies placed on Chinese goods will not have a significant impact on the trade deficit, just shift the deficit to other countries also producing the tariffed items.

“What is produced in China and what is imported by the U.S. will be produced elsewhere, mostly outside the U.S. The price for tariffs is being paid by U.S. consumers and this is a negative development for the U.S. economy,” Lamy said.

Tariffs are paid by importers, not exporters, who in turn pass the increased costs on to consumers.

The 2019 U.S. trade deficit fell to $8.5 billion last year from a decade-high $8.7 billion in 2018, the Census Bureau reported Wednesday. It was the first drop in six years, largely due to decreased imports from China, which fell 16.2%, and of crude oil, which fell 19.3%.

Imports fell to $2.49 billion in 2019 from $2.54 billion in 2018, but exports also were lower, $1.645 billion compared to $1.665 billion.

Trump has made reducing the trade deficit a hallmark of his administration though economists generally don’t worry about the figure. He cited the deficit as the reason for renegotiating trade deals with China, Mexico and Canada, and is threatening tariffs on a raft of European goods unless a new deal with the European Union can be negotiated.

Trump has been highly critical of the WTO, saying it was unfair and calling for reform. Washington has prevented the WTO from appointing new members for the last two years to the panel that hears appeals in trade disputes, leaving it without a quorum.

Lamy, who headed the organization from 2005 to 2013, agreed on the need for reform to be able to better deal with China.

“This is why the solution is in reinforcement, renegotiation and an improvement of the WTO disciplines and not in bilateral tariff wars,” Lamy said.

The U.S. and China signed a phase one trade deal Jan. 15. Trump signed on Jan. 29 the U.S.-Mexico-Canada trade deal to replace the North American Free Trade Agreement, which he blamed for the loss of tens of thousands of U.S. factory jobs.

Tariffs on $250 billion in Chinese goods rose from 10% to 15% on Oct. 1. That followed 25% tariffs imposed on steel and 10% on aluminum imposed in March 2018. On Jan. 4, Trump expanded the steel and aluminum tariffs to cover other Chinese metals, as well.

The American Action Forum estimated U.S. and retaliatory Chinese tariffs affected $500 billion in traded goods.

China signaled Thursday it plans to honor the recently signed trade pact, cutting $75 billion in tariffs on U.S. goods next week.