Joseph Stiglitz, Columbia University professor
The U.S. economy would be a big loser if Donald Trump wins the presidential election and imposes new tariffs on imports from China, according to Nobel laureate Joseph Stiglitz.
The end result would be a trade war, a correction in U.S. living standards and a net loss of American jobs, Stiglitz said yesterday in an interview with Bloomberg News in Hong Kong. Stiglitz, 73, was chairman of the Council of Economic Advisers from 1995 to 1997, making him a member of cabinet when Bill Clinton was president.
On China’s economy, the Columbia University professor doesn’t expect a hard landing, though he’s concerned about the use of credit to fuel growth. And ahead of this week’s keenly anticipated Bank of Japan meeting, he isn’t expecting any fireworks.
The following are edited extracts from the interview:
– If Trump wins the election and implements new tariffs on China, what would the economic impact be?
Joseph Stiglitz – Tariffs on China would have two immediate consequences. One, American workers who depend on low-cost Chinese goods would see their standard of living fall immediately. The likelihood that these industries will return to the U.S. is very low. On the other side, there would be retaliation. China would have within the World Trade Organization the right to impose retaliation against buying all the things they buy from the U.S. It would be a trade war. China would only do it selectively and the probability is that there would be more jobs destroyed than would be created. The net effect on employment would be negative. I think the U.S. would find itself the big loser.
– Is Trump raising any valid concerns about trading with China, or is he exaggerating?
Stiglitz – What he is identifying is a standard naive concern, when I say naive, I mean wrong, that foreigners can undersell us. Would he be any happier if they had a different exchange rate and lower wages? No, they would be selling their goods into the U.S. Trade is based on comparative advantage, we have lost comparative advantage partly because we didn’t have a good manufacturing policy. We still have a comparative advantage for high tech. No economist would ever say you look at bilateral trade. This is a global trade system, we might buy manufactured goods and have a trade deficit with China but then we sell goods elsewhere, you can’t look at it in a bilateral way. The whole framework in which he looks at it is something that would be given a student in a principles course in economics an F.
– So you would grade him F?
Stiglitz – F. He just doesn’t understand much about economics.
– If Trump is elected, could he push through the kind of promises he has made, such as tariffs on China?
Stiglitz – Everyone is talking about how much would he would be constrained by existing rules and our democratic process. We’ve never had it tried by someone who is that far out of the mainstream. The honest answer is nobody really knows. The president has a lot of authority and a lot of influence.
– On China’s economy, do you believe that growth is on track?
Stiglitz – I certainly don’t think a hard landing is inevitable. They have done another impressive job. They have managed to keep the economy going on a reasonably even kilter. On the other hand, the way they have done it has added another dose of risk through credit.
– Away from China, the Bank of Japan meets this week, you aren’t expecting any rabbits to be pulled from the hat. Can you explain?
Stiglitz – We have just reached the limits of monetary policy. Where monetary policy could have the biggest effect would be active policies to expand credit to some groups who haven’t had it before, like small businesses. I don’t think Japan is doing as badly as conventional wisdom says simply because they don’t correct for the size of the labor force in terms of growth of output per working age population. I look at standards of living and they are not doing that badly, you visit Japan you feel that you don’t feel a country in depression.
– You also say that the U.S labor market isn’t as strong as the headlines suggest. Can you elaborate on why you think the jobless rate is between 9 percent and 12 percent?
Stiglitz – You have to look at people who are involuntarily working part time. There are people who are not searching who would normally be searching, then there are even those in disability roles who would normally not be disabled. Somewhere around 9 percent to 12 percent. There is no precision here. There is no significant inflation pressure, that’s a sign the labor market is not tight. Enda Curran and Angie Lau
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