China would likely win a trade war with the US if Washington decides to exert regulatory pressure on the world’s second-largest economy, top US China expert Nicholas Lardy said at a panel discussion in New York on Tuesday.

Lardy, senior fellow at the Peterson Institute for International Economics, was quoted by UPI as saying that the Chinese are better poised to counter the fallout that would result from such an economic clash.

He explained that trade deficits arise for more complicated reasons, and the Trump administration is simplifying the issue in blaming foreign governments, including China’s.

“The only way to deal with a trade deficit is raise savings and investment rates,” Lardy said, referring to the reason deficits occur. In other words, Americans are consuming and spending more than they produce.

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Recent US tax reform is harmful, the China expert added.

“Repeal tax reform,” he said. “Because the tax reform is going to make the US global trade and current account deficit go up.”

Tax reform is also designed to raise interest rates.”There’ll be capital inflow, and the trade deficit will be going up,” Lardy said. “I think it’s almost inevitable.”

“It reflects a fundamental flaw in understanding how the political economy works.”

This first appeared in AsiaTimes here. 

Image: Reuters.