US Economy

Larry Summers: Trump's steel tariffs are a bad idea for the US — even without Chinese retaliation

Key Points
  • Economist Larry Summers called President Donald Trump's steel tariffs "a bit of a 'Stop, or I'll shoot myself in the foot' kind of strategy."
  • The former Treasury secretary said 40 times as many people work in steel-using industries as work in steel-producing industries, so the tariffs would do more harm than good to the U.S. economy.
  • He said the world will have to wait to see how much more trade tensions will ramp up, but he dismissed the idea that any trade war could evolve into financial warfare.
The implications of steel tariffs for the US economy
The implications of steel tariffs for the US economy

Leading economist Larry Summers questioned the wisdom of President Donald Trump's new steel tariffs, saying Saturday that the policy has the potential to damage the U.S. economy.

Speaking with CNBC at the China Development Forum in Beijing, Summers said the tariffs, ordered earlier this month, are positioned to hurt more workers within the U.S.'s borders than they could help.

The move slaps a 25 percent levy on steel and 10 percent charge on aluminum. White House officials have said the tariffs are an essential matter of domestic and economic security, but Summers said that 40 times as many people work in steel-using industries as work in steel-producing industries.

"I don't see that the steel tariffs are a prudent bit of public policy," he said, calling it "a bit of a 'Stop, or I'll shoot myself in the foot' kind of strategy."

All told, he said, the "risks to the American economy from the steel tariffs are far greater than the risks from the absence of the steel tariffs."

One argument for the tariffs is that they could put a trading partner into a bad enough position that it would relent to U.S. demands before harm was done to the American economy. At least regarding China, Summers deemed that unlikely.

"I don't know what damage they'll do China, I just think that they'll do damage to the American economy even before China retaliates," he said.

Little chance of 'financial warfare'

Beijing on Friday said it may target 128 U.S. products with an import value of $3 billion in response to Trump's imposition of broad duties on foreign aluminum and steel imports.

The U.S. president had also announced tariff plans for up to $60 billion in Chinese imports, but China didn't officially connected its Friday threats of retaliation to that White House action.

Larry Summers
Dan Mescon | CNBC

That means, according to Summers, that there may be more to come.

"I don't think we know yet where we are. I think the $3 billion salvo was a response to the earlier aluminium and steel tariffs, and we haven't really seen what the response is to the [other] measures, so we'll have to wait in judgment on how well this is being contained," he said.

But no matter how far a trade war may go, Summers dismissed the idea that Beijing could resort to financial warfare by getting its currency or its purchases of U.S. Treasurys involved.

"I'd be very surprised," the economist said of the notion that China could resort to either strategy. "I think, in both cases, the loss to the Chinese economy would far exceed any pain they would be able to impose on others. So, I don't see trade warfare having any substantial chance of becoming financial warfare — that seems to me to be an overdone concern."

Summers has served as the president of Harvard University, the director of the National Economic council, the chief economist of the World Bank and the U.S. Treasury secretary.

— CNBC's Jeff Cox contributed to this report.