Tariff plan shows misconception about trade deficits: US expert

The US government's recent controversial tariffs on imports from China show its misconceptions about trade deficits, a US expert has said.

"To say that trade deficits are bad, is not the entire story," Robert Salomon, associate professor at the Stern School of Business, New York University, told Xinhua in a recent interview.

Looking at trade deficits, the Trump administration says the United States is "getting beat on trade or the US is losing -- that's not always entirely clear," said Salomon.

There were a variety of reasons for US trade deficits. "Many of them are influenced by macroeconomic factors beyond we're winning and they're losing," he said.

Putting tariffs on Chinese goods and forcing the Chinese side into buying US goods to narrow down the trade deficit only "inflame tensions and lead us ever closer to a full-blown trade war," Salomon said.

He suggested the Trump administration "stop this fixation on deficits in trade of goods" and address issues through proper platforms such as the World Trade Organization or on a bilateral basis with Chinese counterparts.

Furthermore, the United States actually gains from trade deficits, he said.

He explained that China buys US treasuries with dollars it gained from a trade surplus and partly attributes to that the relatively low interest rates in America, which benefit US individuals and businesses.

The US academic positively commented on this "recirculation of US dollars from China back into the United States." Individuals and businesses can borrow on better terms, and it helps US companies to raise capital and start new businesses, said Salomon.

However, he cautioned that trade wars are costly.

In response to the US threat of an additional 25-percent tariff on Chinese imports worth about US$50 billion earlier this month, China has announced additional tariffs for 545 items worth about US$34 billion, raising concerns of a trade war between the two largest economies.

"Trade wars will result in higher prices for consumers, lower profits for corporations," Salomon said.