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发帖数: 1337 | 1 Trump's economic hand grenades will do even more damage to the U.S.
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By Gary Clyde Hufbauer
The administration's latest fight with China is based on bad analysis
The source of Wall Street turbulence? A souring trade war with China.
President Trump labeled China a currency manipulator and announced new 10%
tariffs on $300 billion worth of Chinese goods https://www.spglobal.com/
platts/en/market-insights/latest-news/oil/080119-us-to-impose-10-tariff-on-
300-billion-of-chinese-goods-september-1-trump) scheduled to begin Sept. 1.
China countered https://www.bloomberg.com/news/articles/2019-08-05/china-
hits-back-at-trump-with-weaker-yuan-halt-on-crop-imports) in short order,
allowing the yuan to fall below the 7.0 line -- an 11-year low -- and asking
its state-owned companies to halt imports of U.S. agricultural products. On
Tuesday, the president backed off some of the tariffs http://www.marketwatch.com/story/trump-delays-tariffs-on-chinese-made-laptops-cell-phones-until-christmas-2019-08-13, not wanting to see empty shelves and rising prices during the Christmas shopping season.
The worst part is that the administration's "name and shame" was predicated
on bad analysis. The Treasury Department concluded that the People's Bank of
China did not intervene to support the yuan and therefore engaged in
currency manipulation. But it was market forces driving down the yuan thanks
to the threat of new tariffs. Practically all economists agree -- market
forces, not currency manipulation. For example, Eswar Prasad, former head of
the International Monetary Fund's China division, stated https://www.
nytimes.com/2019/08/06/business/economy/china-currency-manipulator.) that
the decision to label China a currency manipulator was plain wrong. In fact,
most economists join https://www.nytimes.com/2019/08/06/business/economy/
china-currency-manipulator.html) the International Monetary Fund's
assessment that China's currency is fairly valued https://www.imf.org/en/
Publications/ESR/Issues/2019/07/03/2019-external-sector-report).
Whatever the justification, the Trump administration's decisions to brand
China a currency manipulator and to hurl economic grenades lobbed eastward
are causing real havoc for the American economy.
On this course, an economic slowdown is probable, and a recession is
possible. That would be most unwelcome for American companies and consumers
heading into the 2020 elections.
Trump's tariffs steal a good portion of the stimulus created by the Tax Cut
and Jobs Act of 2017. Goldman Sachs believes that Trump's trade war has
already cost the United States 0.6% of GDP growth. That's a hit exceeding $
100 billion on an annual basis. The hit comes on top of a slowing global
economy and the possibility that rising consumer prices will put an end to
Fed interest rate cuts.
Not surprisingly, the Dow Jones Industrial Average and the S&P 500 index
have been on a roller-coaster ride. After plummeting 760 points https://www
.cnbc.com/2019/08/05/us-futures-amid-trade-turmoil-between-beijing-and-
washington.html) on Aug. 5 -- its worst decline of 2019 -- trade concerns
brought the Dow industrials down nearly 400 points https://insidetrade.com/
daily-news/markets-slip-uncertainty-over-us-china-trade-continues-rise)on
Monday. Tuesday brought a modest reprieve after Trump backed off a part of
his Sept. 1 tariff threats, but stocks were sinking again http://www.marketwatch.com/story/dow-falls-more-than-500-points-late-morning-wednesday-as-flashing-recession-signal-rattles-stock-market-2019-08-14 on Wednesday.
American farmers have paid a heavy price for the president's trade war with
China. In 2017, China imported $19.5 billion https://www.reuters.com/
article/us-usa-trade-china-agriculture/u-s-farmers-suffer-body-blow-as-china
-slams-door-on-farm-purchases-idUSKCN1UV0XJ) of American farm goods. That
number dropped more than half to just $9.1 billion in 2018 because of
tariffs. In the first half of 2019, Chinese imports are down another 20%
from the first half of 2018. This includes an American dairy sector whose
exports to China have dropped 54% this year https://www.wsj.com/articles/
china-deals-body-blow-to-struggling-u-s-farm-belt-11565093998).
All told, tariffs are expected to cost the agricultural sectors 59,000 to 71
,000 jobs https://pjmedia.com/trending/china-one-ups-trump-in-trade-war-as-
beijing-suspends-all-imports-of-us-farm-products/) over the next two years.
Moreover, the loss of the China market has pressured U.S. farm prices on
exports worldwide -- a double whammy.
Farmers aren't the only casualty of the administration's stumbles on trade
policy. Manufacturers, including giants like Boeing(BA) and Caterpillar(CAT)
, have seen higher costs as tariffs increased on steel and aluminum. And
consumer prices http://www.marketwatch.com/story/higher-gas-prices-rent-boost-cost-of-living-in-july-cpi-shows-but-us-inflation-still-mild-2019-08-13 are suddenly on the rise, about 0.3% per month. At this pace, the Fed will soon be worrying about too much inflation, not too little.
When it comes to the energy sector, China has countered U.S. economic
aggression with 10% retaliatory tariffs https://www.spglobal.com/platts/en/
market-insights/latest-news/oil/080119-us-to-impose-10-tariff-on-300-billion
-of-chinese-goods-september-1-trump) on Liquefied Natural Gas (LNG), a
figure that will soon jump to 25%. This threatens a massive market for
booming U.S. energy supplies, as China is poised to overtake https://www.
spglobal.com/en/research-insights/articles/asian-lng-landscape-shifts-as-
emerging-markets-liberalize) Japan as the No. 1 importer of LNG. In fact,
damage has already occurred. In 2017, 25 LNG cargo ships https://www.
reuters.com/article/us-usa-trade-china-lng/trade-war-cuts-u-s-lng-exports-to
-china-in-2018-idUSKCN1P32HV) went from the United States to China, a number
that dropped to just six in 2018 as tensions between Washington and Beijing
mounted.
Analysts are now predicting https://www.bloomberg.com/news/articles/2019-08
-06/u-s-oil-likely-in-china-s-cross-hairs-as-trade-war-deepens) that the
latest escalation could dampen the U.S. oil market, as China is expected to
avoid U.S. crude oil.
On the technology side, a prolonged trade war risks Chinese retaliation
against the American tech industry. Apple(AAPL) and Microsoft(MSFT) both do
significant business in China. That's one reason Apple shares initially
dropped over 5% on the tariff news; Apple since rebounded on Tuesday
following the news that tariffs on laptops and cellphones would be delayed
until Dec. 15. The reality is that tech firms need access to markets
worldwide to cover their huge R&D costs. The Chinese market is critical to
their global success.
Among major retailers instantly affected https://www.cnbc.com/2019/08/12/
stock-market-wall-street-in-focus-after-china-fixes-yuan-at-stronger-than-
expected-level.html) by the latest round of tariffs, Office Depot shares(ODP
) fell 5.6% while Nordstrom(JWN) dropped 2.35%. Higher consumer prices aren'
t good news for retail sales volumes.
Trump often boasts about tariff revenue collected on imports from China,
estimated at $63 billion through June https://www.wsj.com/articles/u-s-
collects-63-billion-in-chinese-tariffs-through-june-11565168400) according
to U.S. Treasury data. But serious analysis shows that nearly all this tax
is paid by American firms and consumers, not Chinese exporters. The damage
to the U.S. economy far exceeds the Treasury's new tariff revenue.
This recent Wall Street roller coaster isn't an aberration, but a
predictable response to what many investors fear could be a protracted and
costly trade war with a valued economic partner. On Tuesday, the stock
market rallied after Trump postponed tariff hikes on consumer electronics.
But if the president doesn't reverse course to a much greater extent and
take a more cooperative approach to address legitimate grievances with China
, the news will get worse after the Christmas season, if not before.
Gary Clyde Hufbauer is an economist and senior fellow at the Peterson
Institute for International Economics https://www.piie.com/.
-Gary Clyde Hufbauer; 415-439-6400; [email protected]
(END) Dow Jones Newswires
August 14, 2019 14:25 ET (18:25 GMT) |
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