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A trade war will hurt those Trump says he's fighting for, says Nobel-winning economist

  • A trade war between the U.S. and China will ultimately hurt the very people President Donald Trump says he's aiming to protect, according to Nobel Prize-winning economist Christopher Pissarides.
  • Trump was having a "knee-jerk reaction" to certain groups of Americans who did not benefit from the past several decades of open trade, Pissarides said at the China Development Forum in Beijing.

A trade war between the United States and China would ultimately hurt the very people President Donald Trump says he's aiming to protect, according to a Nobel Prize-winning economist.

Christopher Pissarides, a professor of economics at the London School of Economics, said Trump was having a "knee-jerk reaction" to certain groups of Americans who did not benefit from the past several decades of open trade.

"There are losers from (open trade) and as long as governments deal with the losers, so that they don't feel left out, then everyone can benefit," Pissarides told CNBC on Saturday at the China Development Forum in Beijing.

"What the United States has failed to do in the past was to deal with the loser. Standards of living have fallen for certain groups of the population at the same time as the economy was growing," he said.

Christopher Pissarides, a professor of economics at the London School of Economics.
Giorgio Cosulich | Getty Images
Christopher Pissarides, a professor of economics at the London School of Economics.

He explained that, ultimately, Americans — especially those that Trump claims to be protecting — could lose out if countries move away from open trade. "It would actually hurt them more if there is a trade war and it will hurt many, many more people in the United States," Pissarides said.

As a candidate, Trump had promised to renegotiate or eradicate bad trade deals between the United States and its trading partners, and pledged to hit back at China for its lopsided trade policies.

Earlier this month, Trump signed an executive order that imposed broad duties on foreign aluminum and steel imports — Canada and Mexico were exempted from that rule while some, including the European Union, would likely be given temporary reprieve.

Beijing said last week it may target 128 U.S. products with an import value of $3 billion in response to the steel and aluminum import duty.

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

Pissarides said Trump's recent moves were likely entirely engineered as an appeal to his base — and countries like China probably understand that. During his election campaign, Trump promised to revive the U.S. manufacturing industry and recreate jobs that had been lost in the past several decades.

But Pissarides said the U.S., as the world's most technologically advanced economy, should instead be "pushing along the technological frontier."

For China, it's a question of "how long do you let (Trump) get on like that without a trade war?" Pissarides said.

"The only way to avoid the trade war, and make life better for everyone, at least create conditions under which it can be made better, is for Trump to back down on that, but he has never backed down on anything," he said.

"Once he decided to do something, he's pushing and if any advisor is telling him 'it's not a good idea, Mr. President,' then he fires them. So, what can you do?" Pissarides added.