Trump should ignore Summers’ advice

Larry Summers has a piece in FT on April 10 exhorting the U.S. to work on its economic relationship with China. Not the other way around.

To the extent that China trade has caused disruption in the US, it is the result of China’s remarkable growth and increase in capacity to produce, not unfair trade policies.

Really? How about reading Brad Setser’s piece here

But if the US succeeds in stopping the subsidies or blocking the subsidised products, the results will be to shift production to Vietnam and other low-wage countries rather than to create good jobs in the US.

Time and again, Mr. Summers has demonstrated his inabiity to understand that the real world differs a great deal from his textbook models. One recalls his spat with Michael Spence and Kevin Warsh and how Stanley Druckenmiller deconstructed Mr. Summers in a conversation with Andrew Ross-Sorkin in 2015 on why ultra-low interest rates do not help capital formation.

In theory, they should. In reality, they don’t. BIS has tonnes of evidence to share with Summers on that.

Similarly, it is very unlikely that trade would shift so seamlessly to Vietnam from China. There are so many barriers – costs, technology, skills, knowhow, etc.

Just listened to Prof. David Shambaugh today in Singapore and he pointed out that there is vast hyperbole – divorced from reality – about the rising global importance and influence of China and the corresponding waning of America’s. Summers’ piece is one more example of that.


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