Trump's Former Chief Economic Adviser Says China Trade War Has Backfired: 'Everyone Loses'

U.S. President Donald Trump's former chief economic adviser Gary Cohn has suggested the trade war with China is backfiring on the American economy and having little impact on the Asian giant.

Trump believes his tariffs on $200 billion of Chinese goods imports are hurting the economy over there, giving Washington leverage over Beijing as it negotiates a new trade deal that he hopes will deliver better terms.

But Cohn, a former top executive at the investment bank Goldman Sachs who quit Trump's economic advisory team in 2018 over tariffs on steel and aluminum imports, said this is not the case, and that other forces were driving China's recent slowdown.

"I don't really think it's hitting the Chinese economy. I think the Chinese economy is driven by credit and credit availability," Cohn, who believes in free trade and is opposed to the Trump administration's protectionism, told BBC News.

"Credit and credit availability is determined by the central government. The central government owns the credit availability mechanism and network in China, and they can turn credit on and they can turn credit off.

"I think the trade war with the United States was a very convenient excuse for the Chinese to slow down their economy when they needed to slow down an overheated economy where prices, and real estate prices, and everything were getting out of hand."

A March 2019 paper by the National Bureau of Economic Research, which looked into the data around the impact of Trump's tariffs, concluded that the costs were almost entirely borne by American consumers and importers.

The study's authors found "no impact so far on the prices received by foreign exporters." Moreover, American producers had responded to the reduction in Chinese competition by raising their prices.

"Our results imply that the tariff revenue the U.S. is now collecting is insufficient to compensate the losses being born by the consumers of imports," the study found.

According to the Congressional Budget Office, Trump's China tariffs—even before the latest hike in May—equate to a 0.1 percent drop in the annual rate of U.S. GDP growth rate on average until 2029.

"I think everyone loses in a trade war. We are an 80% service economy. The service side of the economy is doing very well, because, guess what, it's not being tariffed," Cohn told the BBC.

"When you build plant equipment, you're buying steel, you're buying aluminum, you're buying imported products and then we put tariffs on those, so literally the tax incentive we gave you with one hand was taken away with the other hand.

The White House did not respond immediately to Newsweek's request for comment.

gary cohn trump china trade war
Former Director of the National Economic Council Gary Cohn (Back) listens to US President Donald J. Trump (front) deliver remarks during a meeting with members of his Cabinet, in the Cabinet Room of the White House March 8, 2018 in Washington, DC. Michael Reynolds-Pool/Getty Images