President Donald Trump's policies have badly damaged world trade and investment systems carefully constructed for 70 years, and this is clearly evident from the latest round of tariff hikes. 

Gary Clyde Hufbauer, senior fellow with the Peterson Institute for International Economics, expressed his views on U.S.-China trade disputes and President Donald Trump's international trade policies during an email interview with China.org.cn. 

Q: What industries are most likely to be subjected to the new round of tariff hikes in China and the United States, and even on a global scale? Who actually bears the cost of these measures in the long run? 

The latest round of tariff hikes, taking effect on June 1, will hit a wide range of consumer goods imported by the U.S. from China – things like clothing, dishware, furniture, toys, paper, TV sets and radios. [In addition], intermediate products like pipes, auto parts, tools and fencing will be hit. In the end, American consumers will pay the tariffs through higher prices [and] only a small portion will be absorbed by Chinese exporters or U.S. distributors. 

Q: The Trump administration has rolled out a $16 billion aid package for U.S. farmers. What is your view on this bailout? Do you think it will address the problems that American farmers are facing? 

Nearly all farmers would rather have access to Chinese markets than government subsidies. The subsidy money is not enough to compensate for losses, and the distribution of subsidies will be a bureaucratic nightmare. Many small farmers will be overlooked. 

Q: President Donald Trump has warned that he could impose 25% tariffs on nearly all of Chinese exports to the United States. Do you think this troubling scenario will occur? Are there any measures that can be taken to avoid this? 

On June 28-29, President Trump and President Xi Jinping will meet at the G20 Summit in Osaka, Japan. The most likely outcome, according to experts, is a commercial truce between the United States and China. A truce means no escalation of tariffs, but does not mean existing tariffs will be rapidly dismantled. Behind the scenes, Ambassador Robert Lighthizer and Vice Premier Liu He are trying to put together a package of agreements that would enable a truce [to be declared]. If they fail, the tariff escalation threatened by Trump may be the outcome. 

Hawks in the United States – like Senator Charles Schumer and Steve Bannon – would welcome an escalation. They see strong measures as the right medicine both to distance the United States from China and to compel changes in Chinese policies. [However, such an] escalation will slow down the world economy by at least 0.5%, frighten stock markets worldwide, and risk a recession. The cost to a typical American household of three persons would be $2,200, not a trivial sum for low income supporters of President Trump. American farmers – already facing the lowest prices in decades – would take another hit. Small firms that depend on unique intermediate inputs from China would shut down. Given these facts, Trump will think long and hard before escalating the trade war. Rhetoric is one thing, action is another. 

Years of negotiation, with mutual give and take, are now required to restore China-U.S. commercial relations to the harmonious state that existed only a few years ago. 

Q: What is your larger view of Trump's global trade policy?

Trump's policies have badly damaged the world trade and investment systems carefully constructed [over a period of] 70 years, ever since the Second World War. The United States has legitimate objections to foreign practices; however, instead of addressing the issues one by one, Trump has launched broad trade conflicts with China, Europe and other countries. Rising trade tensions could trigger a world recession. Almost certainly they will erode the global order known as Pax Americana.

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