Jeffrey Sachs: Trump's tariff policy bound to fail

The United States President Donald Trump's aggressive tariff policy is bound to fail, as he overestimates the US market's significance for China and lacks the leverage he believes Washington has over Beijing, said a senior US economist.

Trump's tariff weapon will not make the US great again. Instead, the US "will squander its leadership in global development, finance, and trade, and lose competitiveness", Jeffrey Sachs, a world-renowned professor of economics and director of the Center for Sustainable Development at Columbia University, said in an exclusive interview with China Daily.

"The protectionism will fail and will increasingly isolate the US in the world economy and politics. There are few countries that will accept Trump's approach, even in Europe," Sachs said.

Trump recently announced a 25 percent import tax on all steel and aluminum consignments entering the country, ending previous exemptions for allies including Canada and the European Union. Prior to that, he announced 25 percent additional tariffs on Canadian and Mexican imports, which have been paused until March 1, as well as an additional 10 percent tariff on Chinese goods.

Sachs highlighted Trump's multifaceted rationale behind the aggressive trade policy towards China, citing reasons such as attempting to weaken China, pushing for compliance with US foreign policy demands, and boosting US exports.

However, Sachs firmly stated that Trump's strategy is bound to fail. "China will diversify its trade to the rest of the world, while the US will increasingly lose competitiveness of its own exports in third markets," Sachs said.

In 2024, China saw growth in exports to more than 160 countries and regions, including a 9.6 percent year-on-year rise in exports to economies involved in the Belt and Road Initiative, and a 13.4 percent year-on-year increase to the Association of Southeast Asian Nations, data from the General Administration of Customs showed.

Regarding the potential impact on US inflation, the US economist said "The additional tariffs will surely lower US living standards, partly through higher prices and partly through stagnant incomes."

The US consumer price index jumped 0.5 percent month-on-month in January, the biggest gain since August 2023. It was higher than expected, as Americans face higher costs for a range of goods and services, Reuters reported

Reflecting on historical trade wars, Sachs cautioned that the US risks squandering its leadership, while China and other emerging economies are poised to play more significant roles. He emphasized the importance of maintaining open trade and finance for emerging and developing countries to foster growth.

To counter the repercussions of Trump's tariff policies and stabilize economic growth, Sachs suggested that China should diversify its exports, expand the Belt and Road Initiative, promote Renminbi internationalization, and encourage overseas investment by Chinese companies throughout Asia and Africa.

"China is well-placed to help the entire developing world to achieve rapid economic growth and to make the successful transformation to AI, digital connectivity, advanced robotics, and decarbonized energy systems. The US cannot stop that process or China's strong leadership role in it," Sachs said.

Looking ahead, Sachs anticipated that Trump's second term would likely be more aggressive and volatile as the US faces further decline.

"Yet this will be a very successful period for China. This will be the period of China's great internationalization of sustainable development leadership, the internationalization of the Renminbi, and the internationalization of China's technological supply chains," Sachs said.

"I believe that much of the developing world can achieve rapid development in the coming generation by leapfrogging technology and increasingly integrating in international trade and finance," he added.