Coronavirus: ex-US officials urge rolling back tariffs as one way to improve China cooperation on pandemic

To stanch the economic fallout of the Covid-19 pandemic, Washington may need a radical departure from its China policy of the past few years – starting with a rollback in punitive tariffs that have been in place for nearly two years, former US government officials said.

Calls for cooperation between the US and China have grown in tandem with the rising estimates of how much economic damage the Covid-19 epidemic will cause. Those seeking to renew engagement, though, are up against American nationalists who argue that the global health crisis supports their calls to further disengage from China.

Last week, a coalition of almost 100 former high-ranking US officials and scholars issued a joint statement calling on Washington and Beijing to freeze hostilities while working together to fight the pandemic. Some of those signatories are pushing for more definitive action.

“We are not doing our own economies or the global economy any favours by having a trade war in place after this pandemic is over,” said Carlos Gutierrez, who served as US commerce secretary in the Bush administration from 2005 to 2009 and is now chair of the Albright Stonebridge Group, a Washington consultancy.

“We're looking at a second quarter that, I've seen estimates ranging from 20 to 30 per cent down, so to have a trade war in the middle of that, the jobs that it would cost, the unemployment that it would create, it just doesn't make sense.”

A phase-one trade deal that US President Donald Trump’s administration reached with China in January dropped threatened tariffs on around US$155 billion worth of Chinese imports and halved tariffs to 7.5 per cent on another US$120 billion in goods.

But the deal kept in place the 25 per cent import taxes on US$250 billion worth of Chinese products, mostly intermediate goods used in manufacturing.

“Before the pandemic, our economy was down to about 1.9 per cent GDP growth, and I attribute that in part to the trade war,” Gutierrez said. “Anecdotally we have all heard of how much the farming and agricultural community has been hurt, how much manufacturing has been hurt, so even without the pandemic, we would have had a softening economy.”

Former US officials implore Washington and Beijing to work together on pandemic

The 1.9 per cent growth Gutierrez cited compares with 2.3 per cent for the full year 2019 and 2.9 per cent in 2018, according to US government data.

And in a December report, the US Federal Reserve highlighted the negative effect on manufacturing.

“We find that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices, the report concluded.

“In terms of manufacturing employment, rising input costs and retaliatory tariffs each contribute to the negative relationship, and the contribution from these channels more than offsets a small positive effect from import protection.”

Nicholas Lardy, senior researcher at the Peterson Institute of International Economics in Washington, agreed that tariffs should be shelved at least for the time being, but said that even more important was recognising that the coronavirus pandemic has sapped China’s demand for goods it pledged to buy as part of the deal.

“The phase-one deal is not going to be achievable in the current environment, and [Washington] … should give China more time to ramp up their imports of US goods,” Lardy said.

“I'm not thinking this is likely, but if you're talking about potential things that might be done to improve the relationship I think that would be near the top and suspending the tariffs would be on the list, certainly near the top.”

Former officials urge Washington and Beijing to cooperate on pandemic fight

James Steinberg, US deputy secretary of state in the Obama administration from 2009 to 2011, said that a tariff reprieve would need to be part of a broader rapprochement.

A tariff rollback “would make sense, but I don't think it will work if the framework is, we're suspending them till January, while we try to get [the two economies stabilised], and then we're going to put them back in again”, Steinberg, now a professor of international relations at Syracuse University’s Maxwell School, explained.

“If you go back to the fundamental insights of what happened in the 1930s at the outset of the depression, it wasn't just a temporary halt in trade protectionism that came about as people realised what the crisis was; it was a fundamental rethink towards a much more open cooperative liberal trading regime,” he said.

Steinberg and Gutierrez both signed the statement urging cooperation, along with foreign policy luminaries from both US parties including Madeleine Albright, secretary of state in the Clinton administration.

Also signing were critics of China’s development under President Xi Jinping like Elizabeth Economy, a senior fellow of Asia studies at the New York-based Council on Foreign Relations.

Coronavirus to slash China’s 2020 growth to 2.3 per cent, World Bank warns

Proponents of engagement, though, are up against a rising tide of anger among US lawmakers and some members of the Trump administration who instead are looking to bear down on China further.

Last week, Peter Navarro, the White House director of trade and manufacturing policy and one of the Trump administration’s leading China hawks, used the daily White House coronavirus briefing to revive rhetoric that had been heard during the trade war with Beijing.

“The key here is having advanced manufacturing on US soil that can leapfrog other countries so we don't have to worry about competing against cheap sweatshop labour, lax environmental regulations, different tax regimes and massive subsidies of foreign governments who are actually directly attacking our industrial base,” Navarro said, without specifically mentioning China.

On Monday, Senator Rick Scott, Republican of Florida, speaking of the World Health Organisation, said on Fox News that the “WHO should be held accountable for helping Communist China lie about the coronavirus”.

Last week, Senator Marco Rubio, also a Florida Republican, released a statement condemning the “WHO’s current leadership, who have regularly demonstrated their servility to the Chinese Communist Party”.

Steinberg noted that Trump had pulled back from some of his more strident anti-China rhetoric, especially his use of “Chinese virus” to describe the coronavirus– a sign, Steingberg said, that some in his administration are inclined to be more cooperative with Beijing in trying to halt the pandemic.

Steinberg said that Trump’s more recent positive tone towards Xi showed the influence of the less dogmatic officials in his orbit, including Treasury Secretary Stephen Mnuchin and Trump’s son-in-law and special adviser Jared Kushner.

“To the extent there are different views in the administration,” Steinberg said, “the seriousness of this crisis allows you to move off some of the ideological posturing to a much more realistic understanding that we have a shared fate here”.