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US President Donald Trump’s trade war with China is failing to hit the Chinese economy, according to his former chief economic adviser.
The tit-for-tat tariff battle was “a very convenient excuse” for China to slow down its overheated economy, Gary Cohn told the BBC.
But at the same time, the spat was having “a dramatic effect” on US manufacturing and capital investment.
This was leading to a “bifurcation” of the economy as services were unharmed.
“I think the Chinese economy is driven by credit and credit availability,” Mr Cohn told the BBC’s Today programme.
“Credit and credit availability is determined by the central government. And they can turn it on and they can turn credit off.”
Mr Cohn, a US economist and investment banker, served as director of the National Economic Council in the Trump administration from January 2017 to April 2018.
He announced he was resigning after Mr Trump decided to impose import tariffs on steel and aluminium.
‘Everyone loses’
“I think the Chinese economy was going to slow down with or without a trade war,” Mr Cohn said.
The idea that tariffs would solve trade imbalances between the US and China was a “long-time view” of Mr Trump’s, Mr Cohn added.
He said Mr Trump was right to try to tackle China’s theft of US intellectual property and blocking of US companies’ access to Chinese markets.
“That has to be fixed,” he said.
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Gary Cohn with Donald Trump
But he warned: “I think everyone loses in a trade war. We are an 80% service economy. The service side of the economy is doing very well, because, guess what, it’s not being tariffed.”
Mr Cohn said the tariffs had made it expensive to import vital products from China, counteracting the effects of Mr Trump’s tax cuts, which were designed to stimulate the US economy.
He said: “When you build plant equipment, you’re buying steel, you’re buying aluminium, you’re buying imported products and then we put tariffs on those, so literally the tax incentive we gave you with one hand was taken away with the other hand.
“So we are not seeing the manufacturing job creation. And I think if we get through this tariff situation, there’s a real opportunity to see it here in the United States.”
Mr Cohn is less than flattering about the US president’s policies. He thinks the trade wars have created geopolitical uncertainty, which is stopping businesses from investing. Strikingly he also thinks that, for all the rhetoric, the trade war with China is hurting the US more than it is the Chinese. Mr Trump won’t like reading that. Mr Cohn though delivered for the President on tax cuts and deregulation, one of the things that has given boosters to the US economy – unemployment at record lows, wages rising, consumer confidence increasing. Yes, the tax cuts have disproportionately helped the rich, and handed massive tax windfalls to corporate America – but with a growing economy, and interest rates falling – that doesn’t seem to be a big concern.
Read more analysis from John Sopel.
‘Significant impact’
In a separate BBC interview, Joseph Hinrichs, president of automotive at US carmaker Ford, said the impact of Mr Trump’s tariffs on his business had “subsided” since last year.
“Last year, there was a significant impact to our business because of steel and aluminium tariffs,” he said.
“Actually, we’re net exporters of vehicles to China, so that the increased tariffs last year were put on in retaliation to the US tariffs, that hurt us last year, but they’ve come back down to 15%. They were 40% in the second half of last year.
“Of course, there’s more tariffs on parts and autos coming into the US.
“We’re still seeing some impact from that, so on balance, we’re still paying for some of the increased tariffs, but they’re not as bad as they were last year.”