Bank chief sees Trump's tariffs as US consumer tax

US President Donald Trump's tariffs on imported Chinese goods are tantamount to a tax on US consumers, the Bank of China USA president wrote in a column for a Chinese financial website.

"Trade policies have to make sure consumer interests are duly taken into consideration, and the sanctions will bring serious consequences to US businesses and consumers," the bank executive Xu Chen wrote in a column for Sina Finance.

"For example, the price of raw materials like steel and aluminum will influence the US' major industries, including the beer industry and the automotive industry," stated Xu, who is also the chairman of the China General Chamber of Commerce-USA.

Trump has announced tariffs - mainly intended for China - of 25 percent on imported steel and 10 percent on aluminum.

"The price of US-made cars will increase by 1 percent, which will hurt (their) global competitiveness," Xu wrote. "The increase of the steel price will also have an impact on the other major US industry - the production and transportation of US shale oil and gas."

Xu said that 77 percent of US petroleum and natural gas pipelines use imported steel.

"Today, China and the US have become the most important trading partner for each other. The US is China's second-largest trading partner, the largest export market. And China is the largest trading partner of the US, its third-largest export market and the top import origin," Xu wrote.

He said that according to a report by the National Committee on United States-China Relations, Chinese-owned firms now support more than 140,000 jobs across America, "and the US-China trade relationship actually supports roughly 2.6 million jobs".

Xu said the fundamental reason for the US current account deficit is that the country's domestic demand is greater than its supply, or output.

"The trade deficit problem is not only between China and the US. Since 1976, the US has run trade deficits with the world," said Xu.

"In the past two decades, the US has kept a high consumption rate and low savings rate, which leads to the domestic goods could not meeting the demand of consumers," he wrote. "So, it is dependent on large amounts of foreign, imported goods to fill the gap between the demand and supply, resulting in the trade imbalance."

Xu said that Trump's tax cuts also increased Americans' income, and "that's going to simulate consumption on imported goods".

"If the US doesn't follow the economic laws and solves the problems solely by imposing tariffs to cut the trade deficit, it would not only bring a negative effect, but harm the market-oriented principle that the US has promoted for a long time," according to Xu.

Xu agreed that on a surface level, trade between China and the US appears unbalanced.

However, he said if viewed from a supply chain perspective, the imbalance of trade between the two countries is because their economies are "remarkably complementary" to each other, and US companies want to ensure their comparative advantages.

Trump wants to see a $100 billion reduction in America's trade deficit with China this year, as well as measures on intellectual property, White House trade adviser Peter Navarro told Bloomberg Radio on Monday.

The US reported a $337 billion trade deficit with China last year, although China's figure on the deficit is considerably lower.

Xu said that the US trade deficit with China is exaggerated, and if a value-added measurement is used, only 16.4 percent of the US trade deficit is attributable to China.

According to the statistics from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, more than 50 percent of China's trade surplus with the US is from US-branded products, such as Apple's iPhone, which is assembled in China.

While China's role in the iPhone supply chain is small in dollar value, Apple reaps the benefits of a phone that sells for $1,000, and that high number is tallied as an export from China, adding to the deficit.

Xu said that the US has an annual global goods deficit of about $800 billion.

Cutting only the deficit with China won't solve the US' deficit problem, he said.

Citing a report by the National Bureau of Economic Research in New York, from 2000 to 2006, imported products from China helped lower the prices of manufactured goods in the US by 7.6 percent, which benefits US consumers, especially middle- and low-income families, Xu said.

Bloomberg contributed to this story.