Jeffrey Frankel is a professor of Capital Formation and Growth at Harvard's Kennedy School of Government. (Photo: Harvard)

Washington (People's Daily) -- “Trump’s trade war is hurting just about everyone, not just in other countries, but domestically as well,” said Harvard economist Jeffrey Frankel, while offering his thoughts on the impact of the Trump administration’s tariffs on Chinese goods. Trump’s tariff hikes cannot be understood especially within the political economy because there isn’t one group who benefits from them, Frankel explained.

Frankel is a professor of Capital Formation and Growth at Harvard’s Kennedy School of Government and holds a wide range of research interests in commodities, crises, currencies, international finance, and regional blocs.

Frankel served under the Reagan and Clinton administrations as a member of the Council of Economic Advisers.

Recently, the Trump Administration has used inflation figures as evidence to argue that the rising tariffs will not affect American consumers, but Frankel disagrees.

As Frankel pointed out, the additional tariffs on Chinese goods could cost American households

$500 annually, though that would not provide immediate change on US inflation figures because the macro-economy is influenced by factors outside of trade.

In a report from the International Monetary Fund (IMF), researchers found that tariff revenue generated by the US government has come almost entirely from American importers.

“Some of these tariffs have been passed on to US consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins,” the IMF report said.

Frankel argued the US trade policies had produced a rare phenomenon, a scenario where “almost everybody loses.”

“The costs of the import tariffs are being paid mostly by Americans firms and consumers, not by Chinese firms. In addition, American producers have lost exports, from soybeans to automobiles,” Frankel said.

Traditional political economic models explain tariffs based on the logic that import-competing sectors carry disproportionate political weight so that they can outweigh the diffuse political influence of consumers, thus leading to protectionist policies.

However, Frankel believes this theory is incapable of explaining the present conditions, noting that tariff measures have achieved the “impossible" as they harm everyone.

The United States Trade Representative (USTR) held a public hearing on proposed tariffs worth almost $300 billion in Chinese goods. The seven-day hearing was attended by more than 360 companies and industry associations.

The majority of American businesses opposed the tariff measures, believing they would deal a significant blow to normal market operations, from the existing supply chain, R&D, to future investment.

Outside of the short term effects, US economists are worried about the impact America’s unilateralist trend will have on the global multilateral system, a concern Frankel also shares.

“For several decades, the trend toward economic globalization, for example, international integration via cross-border supply chains, seemed inevitable. Now, unfortunately, a failure of political leadership is turning back the clock,” said Frankel.

Frankel’s views on the future of US-China relations were more upbeat than Washington’s prevailing hawkish voices.

“There were always going to be challenges in assuring the continuation of global peace and prosperity while the US and other major countries make room at the table for China, the new giant power. But I see no reason why China and the US should necessarily come into conflict. Wise leaders can make a big difference,” he said.

Looking to the future, Frankel stressed the world should do everything possible to limit  long-term damage by the US on the rules-based multilateral system, especially with international institutions like the World Trade Organization (WTO).

“Perhaps in the future, we can negotiate language that makes more specific what is meant by vaguely worded loopholes such as ‘national security’ to avoid future abuse,” Frankel added.