New York
CNN
—
Larry Summers is fed up with the tariff defense made by his successor, Treasury Secretary Scott Bessent.
Summers, who served as treasury secretary under President Bill Clinton, blasted Bessent’s claim that Chinese producers will bear the brunt of new US tariffs on imports from China.
“This position is contradicted by every introductory economic textbook and course of which I am aware,” Summers wrote in a post on X on Sunday. “What is the argument or authority for a claim that seems ludicrous?”
For example, Summers said the “Bessent theory” is contradicted by the surge in US steel prices since the start of President Donald Trump’s second term, which is “adding several hundred dollars to the price of new cars.”
The price of US Midwest hot-rolled coil steel hit $1,044 per metric ton last week, according to the CRU Steel Sheet Monitor. That’s 38% higher than just before Trump’s election victory.
Trump announced a sweeping 25% tariff on all steel and aluminum imports on February 10. Those import taxes took effect on March 12.
Earlier this month, Bessent told Fox News that he is “highly confident that the Chinese manufacturers will eat the tariffs – prices won’t go up.”
The Treasury Department did not respond to a request for comment.
A White House official pushed back on Summers’ criticism, noting there are alternatives to China for the United States to source items such as clothes, shoes, electronics, steel and aluminum.
“If we were relying on China exclusively for these items, Larry Summers would be right. We would be hitting ourselves. But these tariffs aren’t going to hit us because the things we get from China, we can get from other places,” the White House official told CNN. The US tariffs are targeting more than $450 billion of Chinese goods.
Of course, the tariffs Trump has slapped on US imports are far greater in size and scope than what were imposed during his first term.
The second Trump administration’s tariffs target more than $1 trillion of imports, compared with about $380 billion of imports during his first term, according to the Tax Foundation. That figure will rise to $1.4 trillion when exemptions for Canada and Mexico lapse in April.
“The biggest surprise from the administration has been the vigor of its tariff policies,” Citigroup economists wrote in a Friday note to clients titled “Maximum Policy Uncertainty.”
Citi initially expected the US effective tariff rate to jump by five to 7.5 percentage points. But given the aggressive tariff moves to date, the bank doubled its estimate to a 10 to 15 percentage point increase.
“This would translate into the highest average US tariff rate since the 1940s. Modern economies have never seen such sizable and broad-based tariffs,” Citi economists wrote in the report, adding that the sharp drop in economic sentiment is “concerning.”
Consumers, investors and businesses are much more sensitive to price increases today than they were during Trump’s first term. The inflation surge during the Biden administration sent prices spiking and spurred anxiety about the economy.
Businesses plan to pass along an average of 73% of tariff increases to consumers, according to a Gartner survey of chief financial officers. Nearly one-third of the CFOs said they plan to pass along virtually all of the tariff hike to consumers, while nearly another third said they would pass on minimal tariff impacts.
US stocks surged on Monday following reports that Trump’s April 2 tariff announcement may be more targeted than previously thought.
Yet Trump still appears poised to sharply increase tariffs – perhaps just not on as many goods from as many nations as feared.
Even as investors celebrated signs of a more targeted tariff approach, Trump threatened new import taxes on his social media platform, Truth Social. On Monday, he said he would slap a 25% tariff on any nation that buys oil from Venezuela.
That sets the stage for a significant increase in tariffs on key US trading partners. The leading buyers of Venezuelan oil last year were China, India and Spain, according to Kpler, which analyzes global trade data.
Tariff skeptics expressed frustration on Monday with the latest trade turmoil.
“The justification for the president’s trade policies keep getting stranger by the day and moving further away from anything recognizable as economics,” officials at the Cato Institute, a think tank that advocates free markets and libertarian ideas, wrote in a report.
