EuroWire July 2019

Transatlantic cable

“These are not benign actions that we are objecting to,” Mr Lighthizer told reporters on 6 th May. Adam Posen, who leads the pro-trade Peterson Institute for International Economics, says for too long investors, businesses and even some of Trump’s own advisers have believed that the president might be talked into a change of heart on trade by either wild swings in markets, such as those triggered by his most recent tariff salvo, or the pain felt by the farming states, most of which he won in 2016. “The upshot of all this is he’s not going to be deterred by the market in the end. He is not going to be deterred by whether this polls well in Iowa,” Mr Posen said. “This is what he genuinely believes – that a mercantilist protectionist trade policy is good for the US.” The authors’ conclusion? “Recent data appear to support Trump’s belief that his protectionist policies are lifting growth and employment. But once you dig into the numbers, it’s tough to see how.” On 10 th May, Bloomberg reported that President Trump had increased tariffs on $200 billion in goods from China, further agitating the financial markets and casting a shadow over the global economy. China immediately responded that it will be forced to retaliate, though no details were given at the time as to what the retaliation would involve. The move came after discussions between President Xi Jinping’s trade envoy and his US counterparts in Washington made little progress, with negotiations due to resume the following morning. Asian stocks saw heavy trading. Chinese state-backed funds were reported jumping into the local market after shares slumped, and the Shanghai Composite closed up 3.1 per cent. S&P 500 futures were down in London trading, putting US stocks – a key metric of performance in Trump’s own analysis – on course for the worst week since December 2018. The fresh wave of tariffs marked a sharp reversal from the previous week, when US officials were optimistic that a pact was within reach. Ahead of the talks on 9 th May, Trump had said the USA would go ahead with preparations to impose 25 per cent tariffs on a As predicted, up go the tariffs. As predicted, China promises retaliation

further $325 billion in goods from China, raising the prospect of all of China’s goods exports to the USA – worth about $540 billion in 2018 – being subject to new import duties. Such a move would take weeks to deploy. But it would have significant repercussions for the US, Chinese and global economies. Economists at Moody’s Analytics said in a report that an all-out trade conflagration between the world’s two largest economies risked tipping the US economy into recession by the end of 2020, just as US voters return to the polls. Those two economies will both get pinched. Bloomberg Economics calculates the new increase will raise the drag on Chinese growth to 0.9 percentage point from 0.5 percentage point. The International Monetary Fund estimates the pullback on the US expansion at about 0.2 percentage point, and potentially more if there’s a blow to markets and confidence. The new tariffs that took effect at 12:01am Washington time, 10 th May, raise duties from 10 per cent to 25 per cent on over 5,700 different product categories from China, from cooked vegetables to Christmas lights. The new duties did not apply to goods already en-route for the USA. American industries quick to decry Trump’s decision included farmers and manufacturers, which will hurt some of his key political constituencies. Kip Eideberg, vice president of government affairs for the Association of Equipment Manufacturers, said the tariffs will “suppress job gains for the industry by as much as 400,000 over ten years. It will also invite China to hit back at American businesses, farmers, communities and families.” Reported by Reuters on 9 th May, Nelson Dong, senior partner at international law firm Dorsey and Whitney, had warned: “For months, US companies and agricultural producers, and their respective trade associations, have desperately urged the two sides to come to some kind of trade agreement that would prevent the further use of tariffs by both countries, fearing such a scenario would cripple their already-damaged bilateral trading relationship. “However, those urgent pleas seem to have been ignored. Once again, the two countries, and indeed, the entire world’s economy, will be forced into a crisis mode that will likely inflict enormous losses on many individual companies and many thousands of workers and farmers in both countries.” Gill Watson – USA Editor

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July 2019