Trade tit for tat
The trade war is heating up again, and unfortunately for all of us, I don’t mean the kind that involves starships and lightsabers.
Last week, President Donald Trump levied an additional $200 billion in tariffs on China amid continuing trade talks with the United States. That was quickly followed by Beijing declaring its intention to hike tariffs on the U.S. by a further $60 billion, and as of today, May 14, (though God knows what will have happened by the time this is published) the U.S. has indicated that it is preparing to raise the stakes even further by increasing tariffs by $300 billion.
According to the office of the U.S. Trade Representative (currently Robert Lighthizer, who must be having quite the week), this increase would amount to tariffs covering “essentially all products not currently covered by action in this investigation.” The newest round of tariffs would exclude only a few categories of product, and could take effect late next month.
Voodoo economics, but worse
Beyond the specific back-and-forth of the trade war though, let’s talk about the broader impact. First off, trade wars are not, in fact, “good, and easy to win,” despite the president’s tweets. Shocking, I know.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
Second, Trump fundamentally does not understand how tariffs work, despite how trigger-happy he has been in imposing them. The extent to which he is utterly, categorically and objectively wrong cannot be understated, but I’ll say it here just because: no, China does not pay tariffs directly to the U.S. There are not “Billions of Dollars ... pouring into the coffers of the U.S.A.” Regardless of how you feel about them as policy, tariffs hurt American consumers.
Still, Trump is right about one thing. Tariffs hurt the Chinese economy as well as ours, and he’s gambling that the U.S. can up the ante enough and inflict enough economic hurt to bring China back to the negotiating table in a vulnerable position.
That’s a bit of a dangerous gamit though, and not just because tariffs are hurting American farmers, among others, in the short run. The trade war is sending stock markets into a panic: the Dow Jones industrial average plunged by more than 600 points on Monday after China’s latest tariff hike, and all three major stock indices — the Dow, the S&P 500 and the NASDAQ – had their worst day in months.
The Phantom Menace
Beyond the heart palpitations it’s giving Wall Street though, the trade war is imperiling the global economy. According to an OECD assessment released in March, global economic expansion is losing momentum, and “high policy uncertainty, ongoing trade tensions and a further erosion of business and consumer confidence are all contributing to the slowdown.”
And while the current effects of the trade war are painful — both for consumers like you and for American farmers — it’s nothing compared to the impact that the U.S. and countries around the world would feel if we experience another global economic crash.
It’s also worth noting that, despite all Trump’s enthusiasm for the trade war, an economic slump should be his greatest nightmare, at least in the context of the 2020 election (other than maybe Nancy Pelosi). Amid some fairly dismal personal approval numbers, Trump is doing pretty well in terms of the economy when it comes to polling. If his pet trade war doesn’t pan out though, that disappears and things start looking a whole lot worse for him in 2020.
A resolution in sight?
“So,” you may be asking, “if this whole thing is a negotiating tactic by President Dealmaker, are we close to a deal?”
No. At least, not as far as we can tell.
CNN reported Tuesday that trade talks appear to have stalled for now, and there’s no indication of when negotiators will return to the table. A delegation, headed by U.S. Trade Representative Lighthizer, is expected to travel to Beijing soon, but it’s unclear whether they will be starting from scratch on trade talks or if there’s already a framework in place.
In addition to that little problem, the president and his trade advisors are starting to lose Congress — yes, even the Republicans — on the trade war. On Tuesday, Senator Chuck Grassley, R-Iowa, told The New York Times that he wasn’t happy about the latest round of tariffs. “I’m disappointed by the news of additional tariffs out of Beijing and here in Washington,” he said. “Both countries are going to be hurt.”
But while congressional Republicans aren’t happy, for now they’re not taking much in the way of action either, as Politico reported. That might change, however, if markets keep spiraling or if it looks like the economy is starting to falter.
In the big picture though, it doesn’t look like we’re going to see a lot of movement on trade for the time being beyond the ratcheting up of tariffs. Look for a new TATA if a deal gets made, but until then, it’s safe to say you can expect more economically illiterate tweets and maybe some trade-related saber-rattling. And one more time from the good people at PolitiFact, just so we’re clear: “Who pays for US tariffs on Chinese goods? You do.”