The U.S. economy will expand at a robust pace in coming quarters but slow to 2% by the end of 2019. Contrary to Trump’s assertions: Trade wars are not ’easy to win’, can be much more complicated than anticipated, and always have unexpected consequences. Tariffs are bad policy. Trump kicked off the week by imposing 10% tariff on $200 billion worth of Chinese imports. China retaliated with $60 billion saying in affect that they are not going to be pushed around. A trade war could hasten the next US economic downturn.
We looked at indicators: job gains, unemployment rate, GDP growth, wages, business investment, prime-age worker employment. They tell a typical story: Trump’s economy is a continuation of the trend set by the last years of the Obama economy. History books will award Bush and Obama for a historic turnaround. Trump can be credited with only staying out of the way. He has exceeded expectations only for job creation and for GDP growth. The real test will be whether these positive trends can be sustained.
Since consumers pay the higher prices duties bring, for example after Trump put tariffs on washing machines, the price for laundry equipment shot up 16% over a three-month period. Overall, Trump’s tariffs threaten to disrupt businesses and depress their revenues.
Tariffs risk triggering a more alarming response by investors. The evidence is that China is going to be more assertive in this Trump initiated confrontation, implying a more protracted solution. When you add issues such as theft of intellectual property by China and the widening trade gap, negotiations are likely to be protracted. We cannot rule out a ripple throughout the rest of the globe.
Tariffs could translate into less trade, which could hinder growth in smaller nations. The U.S. dollar has already begun to rise in value as trade tensions have mounted. This has insulated the United States from higher prices.
Republicans’ control of the House and the Senate is at stake in the midterm congressional races in November. Trump has portrayed the import taxes as a winning electoral issue because they are forcing other countries to compromise with the United States.
But public opinion suggests that his tariffs could prove a vulnerability. A poll released Aug. 24 by The Associated Press-NORC Center for Public Affairs Research found that 61 percent of Americans disapproved of the president’s handling of trade negotiations. All of these trade fights, with Mexico, Canada, and China may be riling businesses and consumers, the ones who pay for the increased prices. In the long run, does the US behavior impair our image and world vitality? Countries are worried by our unilateralism. Threat to the dollar?