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Former White House economist: U.S. 'shooting ourselves in the foot' in trade war

Aarthi Swaminathan
Finance Writer

A former White House official believes that President Donald Trump’s art of the deal is akin to “shooting ourselves in the foot” when it comes to the U.S. economy

As the U.S.-China trade negotiations drag on without a firm end date, “the Trump administration's gotten themselves into a bit of a fix where the options don't look terribly good,” Chicago Council on Global Affairs senior fellow Phil Levy told Yahoo Finance’s On The Move (video above). “This all has to do with their desire to keep their options open to strike at the Chinese whenever they want, or whenever they think the Chinese have done something wrong.”

Levy, who was formerly a senior economist for trade on former President George W. Bush’s Council of Economic Advisers, said that the administration’s strategy in trying to solve the various issues America has with China — which range bilateral trade deficits to unfair trade practices — had already been talked about by “at least two administrations.”

But “what we weren't doing was necessarily shooting ourselves in the foot and saying, hey, look, we've taken action,” stressed Levy. “I think that's the problem with this.”

US President Donald Trump speaks to the press aboard Air Force One in flight as he travels from Joint Base Andrews in Maryland, to Bedminster, New Jersey, June 29, 2018. (Photo credit: SAUL LOEB/AFP/Getty Images)

World Trade Organization is ‘about to fall apart’

Levy’s main criticism was that the Trump administration was undermining the World Trade Organization (WTO), which he believed is likely to induce more chaos, while offering no alternatives.

The Trump administration is “circumventing the WTO … [which is] this sort of established system where you'd have impartial judgments,” said Levy. This new system that’s emerging “moves around all of that, and it gives up some of the protections that offered.”

The WTO is a multilateral organization was set up in 1995 in Geneva, Switzerland, succeeding the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War. It has a total of 164 member countries which account for 98% of world trade. 22 countries negotiating membership. China joined the WTO in 2001 after 15 years of talks.

The organization offers a forum and various mechanisms for trade disputes, and aims to lower “trade barriers through negotiations among member governments,” as well as to prevent them from “spilling over into political or military conflict.”

But the Trump administration has been opposed to the WTO, blocking key appointments, and even threatening to pull out of the organization amid complaints that the WTO gives preferential treatment towards Beijing.

Levy said that the administration’s pushback could lead to “the WTO judicial system is about to fall apart, probably by about the end of the year.”

In this Dec. 1, 2018, photo, President Donald Trump meets with China's President Xi Jinping during their bilateral meeting at the G20 Summit, in Buenos Aires, Argentina. (AP Photo/Pablo Martinez Monsivais, File)

‘Nonsensical concerns’

And while Levy wasn’t opposed to a deal — if and when that happens — it was the game that he opposed.

“There are serious problems with theft of intellectual property, with cyber attacks, and we have some real concerns about state owned enterprises and subsidies that the Chinese give,” Levy said. But “the problem is that those legitimate serious concerns are getting mixed in with some nonsensical concerns like bilateral trade deficits and is diluting our message. And at the same time, the U.S. is attacking its other trade partners, alienating them instead of engaging them in these common concerns.”

He added that the “Trump administration's been very slow to ... offer remedies [and] to be precise about what they'd want.

“How do you want to fix this? Instead, it's sort of asphyxiating it.”

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami .

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