washington journal continues.

host: at our table this morning, christine mcdaniel, a former white house senior trade economist during the george bush administration and now a senior fellow at the george mason university mercatus center. we are talking about trade policy with china. what is a at our table this morning, christine mcdaniels, a former white house senior trade economist during the george w. bush administration and now senior fellow, research fellow, at the george mason university center. thanks for being here. talking about trade policy with china. what is a terrorist -- tariff.

>> it is a tax on imported products. let's say you import this pen, it is one dollar, and let's say the government puts a 10% tariff on it, you pay $1.10. >> why do countries like the united states have tariffs? >> a long time ago countries used to have tariffs because it was a good revenue raiser. but over time, countries got better at having income taxes, personal income tax, corporate income tax, they got better at collecting taxes. and now, tariffs are really a demand in this part of the revenue stream. >> compare tariffs put on products by the united states to other countries. >> the u.s. tariffs are still pretty low, even though they are in the news a lot right now and have been the past few years. the u.s. tariffs are still pretty low. the average is still about 2% to 3%. but now we have these big spikes in key sectors.

other countries, their average tariffs can range anywhere from 5% to 25%. some countries like india , a lot of there are will go up to north of 35%. >> who thinks tariffs are a good idea? >> you know, it depends on who is in office. a lot of it is political. i think if you talk to any member of congress or politician or policymaker one- on-one, if it is just the two of you with no cameras around, it is pretty clear that tariffs are a tax on imports, and imports, that is consumers. consumers are also businesses. half of u.s. imports are intermediate inputs like primary goods, raw materials, capital goods, intermediate inputs. things the u.s. manufacturers need to make stuff here. i don't really think there are many people who think a tariff is a good idea. some people, you know, well-

intentioned, but misguided, feel that tariffs might help to balance our trade deficit . that is not -- it doesn't work like that. >> why doesn't it work like that? >> our trade deficit is really driven by macro factors. so we have, in the u.s., we have a pretty big propensity to consume and a low propensity to save. other countries are flipped. they basically finance our spending and investment. the u.s. is a pretty popular place to invest your money. we bring in a lot of capital, but we also, they make a lot of money here, but we also tend to run a capital account surplus. for my students out there listening, they will know what i am talking about. i mean, a tariff does not

affect a trade balance. some countries have trade surpluses, some have deficits. it has nothing to do with trade policy . it is driven by saving and investment behavior. >> all right. viewers may have questions on that. if you do , and we will take your comments as well, dial in this morning. remember, you can text. include your first name, city and state. 202-748-8003. join us on facebook.com/c-span or on x with the handle c-span wj. president biden announcing yesterday a series of tariffs on chinese products. here is what he had to say. >> back in 2000 with cheap steel from china flooding the market, towns across pennsylvania and ohio were hit hard. more than 800 steelworkers in pennsylvania and ohio lost their jobs.

i am not going to let that happen today. today i am announcing new tariffs a key sectors of the economy to ensure workers are not held back by unfair trade practices. they include what i am announcing today, 25% tariff on chinese steel aluminum products. will counter the overcapacity in these industries. we are making major investments in clean american steel and aluminum. clean. it's a big deal. clean because the way we manufacture it here. it makes half as much carbon as steel made in china. last month my administration announced the largest investment in clean manufacturing in all of history. up to 1.5 billion dollars in clean steel across america. creating and supporting thousands of union jobs. next, i 100% tariff on luxury vehicles made in china. [ applause ] we are not going to let china flood our market,

making it impossible for american auto manufacturers to compete fairly. we are also implementing a 25% tariff on electric vehicle batteries from china, and a 25% tariff on critical minerals. i determined the future of electric vehicles made in america by union workers. >> was this announcement significant? >> yes. any presidential announcement on trade and trade policy is significant. you know, the economics aspect of this, and probably the political aspect of this. the timing is interesting, but you know, this comes at a time when the current administration is trying to increase the number of electric vehicles on the road, trying to increase the share of electric vehicles on the road. that is going to be a big transition for the u.s. auto industry. the administration is trying to

do what it can to make sure that that transition happens in a way that doesn't wipe out the u.s. auto industry. and so, when china can sell, make and sell an easy for $10,000, if they do invest heavily in that, and then start to ship those cars to the u.s., then it would be great for consumers, great for our climate policy, but it would be very disruptive to the u.s. auto industry and those workers. >> you heard the president say he is doing this because of overcapacity in those industries that he named. what did he mean by that? >> overcapacity is a term a lot of people are using lately. it basically means that there is more supply than demand. and so, often this happens. really, in any market we often

have -- you're never at equilibrium. we're always hovering around equilibrium. but -- so sometimes the supply is greater than demand and sometimes demand is greater than supply. as long as those are market- driven, that is one thing. but when they are driven by other government actions, foreign government actions and those actions that can be disruptive and harmful to you as industry and workers, that is when policymakers, lawmakers, tend to want to step in and invoke tariffs. overcapacity here is really referring to china, they have a largely nonmarket economy. their government is very involved with their economy. when they decide these are the top five sectors we will invest in, they go for it. owing to their share sides. when china wants to make more

blue widgets, they can literally flood the market with blue widgets. if you're working in that sector or you are a small or medium business, even large business in that sector, maybe you just invested a lot in, that is going to be very disruptive. and so, when that overcapacity is driven by nonmarket forces, that tends to be a real problem . and frankly, it is not compliant with wto rules. >> we will get to calls. ron is first in michigan. >> good morning. i have two questions. we can get into saying it pretty deeply because i do some trading on the stock market. number one, the amount of trade , the deficit you put on the

companies from outside the united states by 100%, that is, to me, a diluting factor that is going to cut competition going forward. number two, why is biden doing -- i am not a democrat or republican. i am totally independent. but why is biden doing it now? why didn't he do it last year or the year before? it seems like this being an election year, it almost seems like he is trying to grasp the fact that he would be making more money in the long run by putting this on. i think competition is very important in any manufacturing. that is about all i have to say. thank you. >> ron, it's a great point. definitely tariffs eventually hurt the competitiveness of the u.s. industry. especially when half of our

imports are intermediate products. we put tariffs on those things. it has this cascading effect. over the long run, it definitely hurts u.s. competitiveness. it also raises prices and tends to be inflationary. so wally can have short run benefits for the industry and the workers directly affected, it has medium to longer term adverse effects, pretty nontrivial costs on the rest of the economy. the costs tend to be more spread out. it is kind of like death by 1000 cuts. any one tariff individually, it's a paper cut. but there are a lot of paper cuts now in the economy. the competition affects our worrisome. >> how can china retaliate?

>> china can definitely retaliate. we saw the u.s. trade representative yesterday talking about this. there watching closely how china will respond. china can retaliate in terms of putting tariffs on its imports from the united states. it could decide that brazil corn looks a lot better than u.s. corn. and other countries, agricultural products look a lot more attractive. it could start to put some controls on key components that u.s. auto industry is going to need for making batteries like graphite. last year or so china started talking about just putting in place the option to control its exports of these key raw materials. frankly, they are one of the only producers of these right now. they haven't used it yet, but it was definitely a warning

that they could if they wanted. whenever you see trade tensions heat up like this, you always worry that china is going to start cutting off things that the u.s. will need. >> roger in ohio. republican. >> good morning. i would like to say that we need to clean washington up. the chinese, because of cheap paper, put out all the mills in the united states. the cotton mills. people are looking for cheap stuff and have to pay for. of the chinese bring those little cars over here, electric cars are subject to catch on fire. chevrolet had one that caught on fire. we can't compete

with that labor because they make $20 a day, and our people are making $20 per hour. >> let's take that last point. >> yes, they definitely have lower labor costs than the united states. luck, labor intensive production is not a fair advantage. our competitive advantage tends to be in the higher end of advanced manufacturing. wheedle import many autos from china. there are very few imports of chinese electric vehicles in the u.s. right now. this was largely, i would just say, i mean, it is not like we are importing these chinese cars and now we're putting tariffs on them. we are not importing them anyway.

maybe it was a warning shot, hey, don't even think about it. or maybe it is an election year , election years are always silly season. we have the other candidate was also talking about doing this am i getting tough on china. it seems to be popular across the aisle. even if we did start to import chinese cars, it is not necessarily clear they would be that popular because, you know, there are safety concerns. there are rules and regulations on safety, data privacy and other things. there are a lot of hoops that would have to be gone through. it was largely i just think almost for show. we don't really import evs from china anyway. >> fort wayne, indiana. you are next. a republican. >> christine just said why i was calling in. one former president trump spoke about tariffs, who is talking about cars made by china in mexico.

if they were to be put on, they should come in from the cars from mexico that are being made by chinese engineers and whatever. it is a total part of the president to try to keep up with what former president trump is talking about. anyway, christine took what i have to say. we are not importing cars from china. >> anything else to add? >> great point. also, very good point about mexico. that is where a lot of people are watching whether or not china will invest in mexico, build their, and use mexico to send to the u.s. you know, that might even be next. maybe washington will want to go back and renegotiate the u.s.-mexico-canada agreement. we will see. we went through a lot of this.

some of your callers might remember. back in the '80s with japan and autos during the reagan administration. there were a lot of tariffs, trade restrictions , and they built this big tariff wall around the united states. finally, japan's second okay, we're going to jump over that wall and start building cars in the united states. some would argue that is what reagan wanted. in that case, it kind of works. and now, he we have the japanese transplants. a huge employer of us workers. very successful here. but it is not clear, it is not easy to see that happening with china, though. it is not clear how this will end up yet. >> here is a viewer. william in connecticut, an independent. tariffs are bad. why not subsidize u.s. companies temporarily? this is what we get sending

jobs overseas. these products are dangerous in regards to battery, and in the cold 40% less battery life. addresses these issues. what about subsidizing u.s. companies instead of the tariffs? >> that is another tool that washington has and this administration is using that. they have provided a number of subsidies through tax credits, investment credits to automakers in the u.s. and across north america with a lot of rules on that. subsidies and incentives are a big part of the administration's overall plan. these carrots and sticks. the carrots are the subsidies, the tax credits, investment credits. the sticks are the tariffs in terms of keeping other stuff out. >> rick in schenectady, new york. independent. >> i am an economist. i have listened carefully.

i understand your point that workers in the auto industry are going to be adversely affected if we let complete marketing of chinese vehicles in the u.s., however, in the long run, wouldn't this be a bit like trying to hold onto markets that involve non-gas driven automobiles when henry ford brought in the internal combustion engine and all that? aren't we better off in the long run, notwithstanding the auto industry would be adversely affected? >> rick is totally right on. there are a couple of things going on here. you have trade and technology. the technology.definitely well taken. you know, i am sure back in the

day farriers didn't like the auto industry coming in, but i am sure glad that happened anyway. and guess what, they still have jobs today. but then there is the trade side, which is a little bit different than the tech side. trade is basically coming you know, if somebody can do something cheaper, you know, why not let them do it and you focus on what you are better at. this is trade 101. the administration, they say they are trying to protect the u.s. industry and help them through this transition. if it is just protecting them against china it is one thing, but trying to protect them from technology changes is another. this administration does seem to be very involved in the union worker. we have not

really seen that. i've never seen a u.s. president join a picket line like we saw president biden to. -- do. they seem to be very concerned about that part of the citizenship. but absolutely, you know, it is always better to rip the band- aid off and go through a lot of pain up front, and then let the market work it out. this administration doesn't really seem to want to embrace trade in the same way that previous ones have. >> this is one of the viewers on x posting. can you comment on the former president's believes that tariffs don't raise prices per this time magazine interview he did recently? >> well. a tariff is a tax on imports. taxes raise prices. that is what we saw with the trump tariffs. there have been a lot of people who've done a lot of really

hard work and have shown that the trump tariffs led to higher prices for businesses, led to higher prices for consumers. while it did save some jobs in particular industries, they cost a lot more downstream in terms of higher costs. and the retaliation that we felt also costing even more jobs. there is no doubt about it that, i mean, tariffs raise prices. it is a matter of to what extent. if i were there, i don't know why -- i heard that, the link between tariffs and prices has largely been debunked. i don't know where that comes from. it has not been debunked. they're probably feeling under the political pressure here and economists are like, what you talking about?

yes, tariffs raise prices, but we don't think it will raise prices that much in this area, and we think the benefits outweigh any of the costs from the small price rises. i think that is the honest way of going about this. but yeah, every time we have tariffs either does very little or does raise prices. it is a matter of how much. and how much the companies can absorb the prices or how much they have to pass it on to the consumers. even if the companies are absorbing the prices, that still means less investment, less hiring and less growth for them. we absorb it one way or the other. >> what are the similarities and differences between president biden and former president trump on tariffs? >> really not a lot of difference on paper. the way it is delivered, i

think there is a lot of difference. i have a colleague who says, well, you know, biden's trade policies is like trump wine in a biden bottle. it does make sense. very much the same policy, but it is delivered in a different way. but look, this administration has definitely continued with all of president trump's tariffs and even doing more of them. on the other hand, this administration is also doing other things like a lot of investment, credits, tax credits. they're trying to have the carrot and stick approach. that may work or it may not. history shows industrial policy rarely works. so we probably won't to know if this all works for another five or 10 years. but if history is any guide, unfortunately, the odds are not very good on all this.

>> christine mcdaniel, thank you for the conversation this morning. >> thank you.