A trade war is getting nastier. The first phase began when Donald trump whacked duties on imported steel and aluminum, and announced a $50 billion (£37.8 billion) worth of tariffs on Chinese goods. Beijing retaliated dollar for dollar, while the EU targeted Levi’s jeans, Bourbon whiskey and Harley-Davidson motorcycles.
Harley-Davidson replied that he wanted to move motorcycle production for the EU market from the US. Another President might consider this as a warning of collateral damage can be done to the US economy from a trade war, but not this one.
In two stages, trump says he will focus on $200 billion of Chinese goods and threatened to put a 20% duty to import a car from Europe. As inevitably provoke a response of retaliation.
The white house has already announced that the third phase of the programme will include: new investment restrictions with respect to Chinese companies in an attempt to stop intellectual property theft; and we leave the world trade organization on the grounds that the Geneva body was developed in the rest of the world to screw America.
Still, the muted financial market response to trump’s protectionist agenda was explained by three beliefs: that he really does mean what he says and the use of tariffs as a negotiating tool; that even if he really means it when hot heads in Washington will prevail; and that sooner or later harmful consequences of trade policy become so apparent that the President will think again.
Over the past few weeks, it became harder to believe trump is just bluffing. In addition, the panel in Washington creating conditions for free trade appears to be a reduction in the number and influence. People bending your ear on trade is not as committed to America first approach as he is.
That suggests that the world will have to wait for trump to look at new economic data and produce trade wars, not as easy to win as he thinks. Although it may be some time before reached. The export is booming and according to some estimates would add a whole percentage point growth in the second quarter of 2018, a period when the United States grows on average by about 4%. Allowing trump’s claim that his tough approach to trade pays off.
There are reasons why the US economy is now strong, but none of them has nothing to do with tariffs on imports. In particular, this delayed effect on the recovery of the world economy in 2017; this is partly due to tax cuts and incentives continue to be provided only gently rising interest rates. Mickey levy, chief economist at Berenberg, says the agenda of deregulation trump is one of the factors increasing the base rate of growth of America.
Evidence from the presidency of Barack Obama shows how protectionist policies can backfire. In September 2009, when unemployment was 10%, and we were only just out of recession, Obama was persuaded to put tariffs on imported Chinese tires. These were imposed for three years on a sliding scale: 55% in one year, 45% over two years and 35% in three years.
In 2012, Obama used his state of the Union address to boast that the rates ceased rising imports of Chinese tires and saves 1,000 jobs. Research Institute Petersen, a leading Washington thinktank, found that to brag Obama was only partly.
Using what he called “a very optimistic option,” Petersen said of Obama’s intervention saved more than 1,200 jobs. But we, buyers of cars and light trucks pay higher prices for their tires, and less to spend on other things. The total cost to U.S. consumers was about $1.1 billion in 2011, which meant that the cost savings in U.S. tire production work was at least $900 000 per year.
Moreover, the impact purchasing power meant a loss of 3,731 jobs in the retail sector, leaving a net loss of approximately 2,500 jobs.
This experience helps to explain why Chinese tire tariffs expire in 2012. This also explains why economists believe that the current protectionist measures will be similar – only more pronounced effect. Gregory Daco, head of U.S. Economics for commercial firm Oxford Economics, says that if trump goes ahead with its 20% tariff technical import, it will reduce economic growth in the United States by 0.1% in 2019, and 0.2% in 2020, and result in a net loss of jobs per 100 000.
“It is important, given the large side chain of the multipliers supplies to the automotive industry, and side effects from the heightened uncertainty in the business community, the aggregate shock to the economy could be twice as big,” Dacko added.
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The EU and China will also be hurt. Given their dependence on exports, they may suffer even more than in the United States. That, though, is likely to push up the value of the dollar in world currency markets, which will make American exports more expensive.
But while the US economy is in the sweet spot. Rising interest rates another bite, lowering taxes, increasing purchasing power and inflation explosion in the stadium. It will be at least a year, maybe a little more, before the world’s biggest economy is slowing significantly, and trump can do a lot of damage in that time. No question, insane threats to withdraw from the WTO will mark a return to the 1930-ies.
Is the last line of defense. Trump will be forced again to think that if financial markets have ceased to be so calm about his agenda in the field of trade. But should wall Street to Wake up.