Trump Tariffs Hurt But Would Never Help

Professor Jeffrey D. Sachs:

Mr. Chairman, I hope you can hear me. Greetings from Rome, and thank you so much for convening this Arria-formula meeting at an extremely important time and on a crucial topic. The crucial topic is how we can protect, preserve, and extend true multilateralism—that is, governance according to principle, according to ethics, according to international law, and according to the standards of the U.N. Charter.

We are, of course, in a multipolar world where power is widely dispersed across the world, but we are not fully in a multilateral world because of the abuses of the international system, as you have spelled out, Ambassador. Last year, I published a study called The Index of Countries’ Support for U.N.-Based Multilateralism. The purpose of the study was to measure how close or how far countries are from alignment with U.N.-based multilateralism.

I am sorry to say that even last year—before this new round of unilateral tariff measures by the United States—of 193 U.N. member states, the United States ranked last, 193rd in the world, making it the country least aligned with U.N. multilateralism. This is because the United States takes many measures that are outside of the U.N.-based system, that are in violation of the U.N.-based system, that walk away from U.N. commitments; and the United States votes against most of the world most of the time—or, to be more precise, much of the time in the U.N. General Assembly.

You have convened this meeting in part because of the immediate crisis that has occurred because of U.S. unilateral sanctions. These were called “reciprocal tariffs,” but they had nothing to do with reciprocity of tariffs. Let me explain briefly: President Trump made the claim that the U.S. trade deficit is caused by other countries abusing the United States—that is, the U.S. is running a trade deficit, as it does with more than 100 countries, and that this is somehow the fault of those other countries.

Well, I have been teaching international macroeconomics for 44 years, and I can say unequivocally that a trade deficit is not a signal that other countries are somehow taking advantage of the United States; it is only a measure that the United States is spending more than it earns. In other words, its total consumption and investment are greater than its gross national product—that is a statistical identity. The current-account balance, which is the comprehensive measure of the net trade of the United States in goods and services with the rest of the world, equals the excess of U.S. spending over U.S. income.

Now, why does the U.S. spend more than it earns? The reason is that the saving rate in the United States is very low, unlike China, where people, businesses, and government are thrifty. In the United States, the saving rates are low in both the private sector and the public sector, but most notably, the U.S. federal government is running an enormous deficit—between 6 and 7 percent of our gross domestic product, about $2 trillion of deficit per year—and that spills over into a current-account deficit of $1 trillion per year.

So the tariff measures are utterly unjustified by the economic claims of the U.S. government. The tariffs are directed toward a trade deficit that is not the fault of China’s partners; that deficit is the result of America’s large budget deficits and low private saving. And so the United States is blaming other countries for its own economic policies. This is extremely important: there is no excuse for these unilateral tariffs, not remotely are they related to unfair practices of the rest of the world somehow cheating the United States.

Now, the claim of the U.S. government was never examined by Congress; it was never debated in public. It was made as a matter of an emergency decree that, in my view, not only violates multilateralism but also the U.S. Constitution, where Article 1, Section 8, absolutely gives the power of tariffs to the U.S. Congress, not to the President of the United States. There are already several court hearings in the United States challenging the legality of the U.S. government’s unilateral imposition of tariffs.

I find no justification whatsoever economically for the actions that were taken, nor did the financial markets worldwide, which began to enter into a panic and forced the administration in most cases to reverse what it had done. Unfortunately, there is continuing damage to the world economy, including China.

Now, I want to emphasize that this unilateralism takes many forms; the tariffs are just one. If you’ll permit me, Ambassador, I would like to list them briefly. The United States is the biggest user of coercive economic measures other than tariffs—putting on sanctions on different companies, on individuals abroad, on banking sectors abroad. The U.S. is by far the biggest user of unilateral coercive measures, and the U.N. General Assembly repeatedly declares such unilateral coercive measures to be illegal, against the U.N. Charter, and they do enormous harm to populations all over the world—depriving populations of access to basic healthcare, to the most basic needs of food and clean water. They raise mortality rates; in other words, they are not only illegal but extremely damaging to the health and well-being of very poor people.

The U.S., in addition, confiscates the assets of other countries—as it has done with the Russian Federation, with Venezuela, with Iran, with North Korea, with Afghanistan, and with other countries. It simply freezes the dollar holdings of other countries with which it has foreign-policy differences. This is an abuse of the prerogative of the role of the dollar in international settlements, because it is used by the United States as a weapon rather than as a payments-settlement system. This has become very serious under U.S. impetus. Europe, too, has engaged in these unilateral coercive measures, including the confiscation of $300 billion of Russian foreign-exchange reserves, which is, in my opinion, blatantly against international law and against world interest.

The United States, unfortunately, engages in many covert regime-change operations, meaning that it engages not only in economic bullying but in actual attempts or actual overthrows of governments. These have been documented in very serious studies, counting by one excellent study 64 covert regime-change operations during the period 1947 to 1989. This is a staggering fact—no country should be overturning the government of another country under the U.N. Charter.

Unfortunately, the U.S. is also engaged in arms buildups all over the world—no other country comes close to having the U.S. situation of 750 overseas military bases in 80 countries. This by itself, in my opinion, is highly detrimental to American security and a threat to global peace, but it leads to arms buildups all over the world.

I’m sad to say that the United States also is impeding the work of the U.N. system when it comes to trade. The key to a rules-based trade system is the World Trade Organization, which the United States should take pride in helping to bring into existence, and yet since 2019 the United States has blocked the Appellate Panel of the WTO so that dispute settlements cannot take place at the WTO because the Appellate Body does not have the requisite judges—because the United States is deliberately blocking the filling of positions of WTO so that this crucial rules-based institution cannot do its job.

Finally, I would add that the United States has unilaterally departed from fundamental treaties of global significance, including the Anti-Ballistic Missile Treaty in 2002, which was perhaps the single biggest destabilization with Russia because the ABM Treaty was a bulwark of U.S.-Russia stability. The United States unilaterally abandoned the Intermediate-Range Nuclear Forces Treaty in 2019, and under President Trump the United States is walking out once again of the Paris Climate Agreement, which is a crucial global agreement under the U.N. Framework Convention on Climate Change for world security.

This is all quite dire. In other words, the breach of multilateralism and the fact that the United States—a powerful and influential country—is the least multilateral of all U.N. member states poses major risks and challenges to the world. I just want to mention them briefly and then close.

First are the broken economic relations. International trade is not a win-lose proposition; it is a win-win proposition. When the United States and China trade, both sides benefit. When trade relations are ruptured by unilateral tariffs, both sides lose, and it is the poorest countries that lose the most, when the WTO rules based system faces such a crisis.

The second cost, of course, is the arms race. The world is spending trillions of dollars per year on armaments right now—and, God forbid, they should be used. We must not use these armaments, but the waste of resources directed at these armaments is staggering. Many countries, including in Europe, are cutting their development-aid budgets to build their military budgets. This is unacceptable for a peaceful world and will not satisfy our security in any way.

The third cost is open conflict. These unilateral measures lead to war, and we have several wars raging precisely because countries are not obeying the international system. It was decided by the International Court of Justice last year, for example, that Israel is violating international law by extending beyond its borders of June 4, 1967, and the U.N. General Assembly will hold a high-level session on implementation of the two-state solution in June because of this violation. Israel, sadly, is also one of the lowest-ranked countries in the world in multilateralism, so we get open conflict as a result of this.

We also have the dire reality that we have come far too close to nuclear confrontation on several occasions, and the Bulletin of the Atomic Scientists tells the world that we are but 89 seconds from midnight on nuclear confrontation. This is another risk that comes from unilateralism and bullying.

Of course, when we have conflict, bullying, and unilateralism, we don’t gain solutions that we desperately need for climate change, for the green economy, for the future of a sustainable world, and for the Sustainable Development Goals, as you mentioned, Ambassador. The diversion from an absolutely crucial agenda is one of the telling costs of all this.

We are all suffering from unilateralism; we all suffer from bullying. This is a lose-lose proposition. We created 80 years ago, our forefathers did a wondrous job to create the United Nations, to make a system of international law, a system of international respect, and we have the responsibility to promote it.

Thank you for today’s very important session, because it is extremely important that we reverse unilateralism and promote actively multilateralism in the U.N. Charter at every turn as the key to our safety, our survival, and our sustainable development. Thank you very much.

Editor: Charriot Zhai