U.S. Shouldn't Use Spurious Security Claim for Tariffs, Lew Says

(Bloomberg) -- The U.S. should build a global alliance to tackle China on unfair trading practices instead of using spurious national security claims to impose tariffs that also hurt allies, said former U.S. Treasury Secretary Jacob J. Lew.

Lew said that the U.S. is in danger of abandoning the global economic order it helped to build. He also said the U.S. imposed tariffs on imported goods will drive up prices, drag on investment and confuse the outlook for the Federal Reserve.

"I think that if you continue to bring the world together and put pressure on China to do the right thing it would be more effective than using a kind of spurious claim of national security, "Lew said Tuesday in a Bloomberg Television interview. “It doesn’t make sense.”

President Donald Trump last week threatened to impose tariffs on practically all Chinese imports into America, as the world’s two largest economies exchanged blows in a trade war that isn’t set to end anytime soon.

A 25 percent levy on $34 billion of Chinese goods entering the U.S. took effect just after midnight Washington time on Friday with farming plows and airplane parts among the products targeted. China hit back immediately via duties on U.S. shipments including soybeans and automobiles.

Trump is already eyeing the next tranche, on $16 billion of Chinese goods, and he has indicated that the final tariff total could exceed $500 billion, almost the same amount that the U.S. imported in 2017. At the same time, Trump is also locked in disputes with other key trading partners including Mexico and the European Union.

Kerosene Flare

"I am not worried when the U.S. challenges China on legitimate grounds," said Lew, who served through the end of the Obama administration. "What I think is wrong is that the U.S. loses its role as a leader of international norms."

Lew said the U.S. Treasury yield curve merits careful attention and that it isn’t showing a lot of confidence in the long term outlook, adding there are lots of reasons to be nervous about the U.S. economy.

"The tax policies, while they were cheered by the business community, is a little bit like pouring kerosene on a fire," said Lew, who is now a partner at private equity firm Lindsay Goldberg & Co. in New York. "There is a flare you know when you pour the kerosene and then it burns off. The after effect of the tax cut will be trillions of dollars of debt, trillions of dollars of debt. I think that is going to be a burden on the economy as we are getting to the end of the economic cycle."

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