Former Federal Reserve Chairman Alan Greenspan said the seemingly endless trade war between the U.S. and China is “a terrible idea on both sides.”
“Remember what a tariff is -- it's an excise tax,” he told Fox Business Network. “Excise taxes when they are imposed are the same as any tax -- they withdraw purchasing power from an economy,” Greenspan said.
Trump increased tariffs on $200 billion worth of Chinese imports to 25% from 10% last week, Reuters reported. The move is widely expected to raise prices on thousands of products including clothing, furniture and electronics. China retaliated on Monday, though on a smaller scale.
“So if you have two industrial giants, both taking on severe levels of that type of analysis, in other words having a great deal of loss of purchasing power, it’s not good for either one… there is a winner in the fight. But both sides lose. So the winner is the one who loses the least,” he said.
“People do not understand what tariffs are,” Greenspan said. “They are attacks and they are attacks on the country which implements them,” he added.
Emerging-market stocks and currencies have slid in recent weeks as the threat of new U.S. tariffs on billions of dollars of Chinese imports sapped demand for risky assets. On Wednesday, less than a week after hiking import tariffs on about $200 billion worth of Chinese products, Trump raised tensions again, moving to curb Huawei Technologies Co.’s access to the U.S. market and American suppliers.
Greenspan agrees with Trump that China doesn't play by the rules with intellectual property. “He happens to be correct,” Greenspan said of the president.
“I remember that when we first dealt with the Chinese,” he said, “We essentially had a significant number of places where we could build plants provided we made the technology available to the Chinese partner who was made part of us as a condition of coming in. And then what would happen is they'd build the plant. And then they'd build another plant, which they had a hundred percent ownership, and the issue of intellectual property is really an issue. The rest of it is not,” he said.
Greenspan, referencing the military buildup and Huawei technology, warned that it could ultimately end with a nuclear conflict.
“Well, the issue is that you're always left with the issue of where you end it. And at the end of it, it's a nuclear confrontation,” he said. “And neither side on all the countries which have nuclear capacity have chosen not to get up to that edge. The only way to cause a problem is you do it inadvertently and that can happen.”
For its part, Trump's bid to block China’s Huawei Technologies from buying vital American technology threw into question prospects for sales at some of the largest tech companies and drew a sharp rebuke from Beijing, which said the move could hurt trade talks.
Shares of Huawei’s U.S. suppliers fell on fears the Chinese firm would be forced to stop buying American chips, software and other components after the Trump administration banned it from buying U.S. technology without special approval, Reuters explained.
Huawei, the world’s biggest telecoms equipment maker, said that losing access to U.S. suppliers “will do significant economic harm to the American companies” and affect “tens of thousands of American jobs.”
“Huawei will seek remedies immediately and find a resolution to this matter,” the company said in a statement.
The U.S. crackdown, announced on Wednesday, was the latest shot fired in a U.S.-China trade war that is rattling financial markets and threatening to derail a slowing global economy.
Material from Bloomberg and Reuters has been used in this report.
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