Summers Slams 'Absurd' Assertion by Bessent
Larry "Grizzly" Summers ain't got no time for his successor Treasury Secretary Scott "Smooth Talker" Bessent's claims that Chinese producers will be the ones throwing down for new US tariffs on Chinese imports.
Summers, who once served as a treasury secretary under President Bill Clinton, dived head-first into reaming Bessent, calling out his claim as "silly" and "shaky," in a post on Medium late last Sunday. The former economic guru left everyone scratching their heads, wondering who gave the green light for such baseless remarks.
"What's the deal?" Summers write grit-teeth, "What's the logic behind this nonsense? This idea goes against every basic economic textbook I'm aware of."
Case in point, Summers brought up the price surge in US steel prices since President Donald Trump's second term. According to CRU Steel Sheet Monitor, the cost of US Midwest hot-rolled coil steel hit an all-time high of $1,044 per metric ton last week – a rise of 38% from before Trump's victory in the 2016 election.
Trump announced a sweeping 25% tariff on all steel and aluminum imports on February 10, and it kicked off on March 12. And while Bessent confidently upheld that Chinese manufacturers willbankroll the tariffs, the surge in steel prices is proof enough that ain't the case.
The so-called "Bessent theory," as Summers coins it, contradicts the increase in steel prices. If anything, the price hike is adding hundreds of dollars to the cost of new cars.
Not everyone's buying Bessent's stance though. Larry Summers' criticism hasn't gone uncontested. A White House official shifted blame, noting the United States has alternatives when it comes to sources for items like clothes, shoes, electronics – you name it.
"If we were solely relying on China for these goods, Larry Summers would've been right," the official stated to CNN. "But these tariffs won't hit us because we can get these goods from other places." The tariffs target over $450 billion of Chinese goods, the official added.
It's worth noting that the tariffs Trump imposed during his second term are bigger in scope and size than what he employed during his first term. The second Trump administration's tariffs target over $1 trillion of imports, compared with about $380 billion of imports during his first term.
But brace yourself – the costly tariff game isn't over yet. Consumers, investors, and businesses are more sensitive to price hikes today, a harsh reality learned from the Inflation surge during the Biden administration.
Businesses plan to pass along the average 73% of tariff increase to consumers, according to a Gartner survey of CFOs. Some companies even plan to pass along virtually all the tariff hike to consumers.
Despite the recent glimmers of hope in Trump's targeted tariff approach, he still has his sights set on increasing tariffs – just not as much as we’ve been fearing. In fact, he even threatened new tariffs on any nation that buys oil from Venezuela.
This move would significantly increase tariffs on key US trading partners like China, India, and Spain, who were the leading buyers of Venezuelan oil last year. Critics can't help but roll their eyes at the latest trade turmoil and express their frustration.
"There's just no way to justify the President's trade policies," Cato Institute officials wrote in a recent report. "They're getting stranger by the day and veering further away from anything resembling economics."
The Economics Behind the Tariffs
Larry Summers, former Treasury Secretary, has been vocal about his concerns regarding tariffs imposed by the Trump administration, including those on Chinese imports. While these tariffs may target Chinese producers, their impact extends far beyond Chinese shores, as economic instability and retaliatory measures pass the costs on to American consumers and producers.
Here are some key economic arguments and evidence to support the notion that the burden of tariffs is shared across both economies:
- Pass-Through Effects: The cost of tariffs is often passed on to consumers via higher prices. In this case, Chinese producers may face initial costs but can also raise the prices of their exports, passing some of the costs onto American consumers.
- Supply Chain Disruptions: Tariffs can disrupt the global supply chain, causing inefficiencies and increasing costs across the board. This impacts, not just Chinese businesses, but also U.S. companies that are dependent on imported goods for production.
- Economic Instability: The implementation of tariffs can lead to economic instability, potentially triggering a recession. This instability affects global markets, impacting both the U.S. and Chinese economies.
- Retaliation Effects: China's retaliatory measures, such as imposing tariffs on U.S. goods, can hurt American producers, particularly in the agricultural sector. These mutual impacts mean that the burden of tariffs is shared between both economies.
- Despite claiming that Chinese producers would cover the new US tariffs on Chinese imports, the increased costs of US steel, as highlighted by Larry Summers, suggest otherwise.
- The passage of the tariff costs to consumers is a common phenomenon, also known as pass-through effects, which means that Chinese producers can raise the prices of their exports, thereby passing some of the costs onto American consumers.
- Larry Summers' contention that the burden of tariffs is shared between both economies is further supported by the potential disruptions of the global supply chain caused by tariffs and the ensuing economic instability that could lead to a recession, affecting both the US and Chinese economies.
