U.S. Economic Strength Gives Trump Leeway in Trade Fight With China
Yes, this is from the WSJ. A news report, not an editorial which have berated Trump on trade war many times (I posted some on the Editorial forum). So this should worry us but there is some "hope" that it will harm the economy. The question is, will it happen before October.
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WASHINGTON—The U.S. economy’s strength is emboldening the Trump administration to play hardball in its trade offensive against China. Tariffs tend to be economic downers with an impact like sales taxes, which push up costs for consumers and businesses and slow growth. But so far it is tough to argue that the spat with China is having a broad macroeconomic impact.
Economic output in the second quarter is estimated by many economists to have expanded at a 4% annual rate or more, roughly twice the pace of the nine-year-old expansion. The jobless rate, meantime, is near lows last seen during the internet boom in 2000, and wages and incomes are rising modestly. That gives the Donald Trump’s administration what it sees as leeway to hit China without worrying as much about blowback from U.S. households or businesses caught in the crosshairs.
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After weeks of bellicose statements, Trump officials were silent when China answered U.S. tariffs on Friday with measures that threaten soybean and other agricultural exports in farm states vital to Republican chances of keeping their majorities in the House and Senate.
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The tariffs are bound to adversely affect many U.S. industries and could be passed on to American consumers in the form of higher prices. U.S. tariffs singled out parts used in electronics, medical devices and other machines, which could squeeze profit margins of U.S. businesses and prompt them to curtail hiring plans. Chinese tariffs are meant to hit U.S. producers of aircraft, cars, soybeans and other farm goods.
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The Trump administration believes it has the upper hand in the trade battle. With the jobless rate so low, those who lose jobs because of the tariff fight could have an easier time finding other work. Mr. Trump is casting the trade battle as a long-term effort to bring back to the U.S. jobs that have been lost because of Chinese imports and what the U.S. considers unfair trade practices, such as pressuring U.S. firms to transfer technology to Chinese firms.
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But the U.S. can easily overplay its hand. Brookings Institution economist David Dollar, a China expert, says much of the strength of the U.S. economy is the result of one-time adrenaline shots of tax cuts. Those tax cuts will have their maximum impacts in 2018 and 2019, but are projected to fade over time, according to estimates by the Joint Committee on Taxation. As the tax-cut benefits ebb—as Mr. Dollar believes they will in 2019—the longer-run strains of a trade war could build in the months or years to come.
If Mr. Trump goes through with his threat to escalate the fight and target nearly all of China’s $505 billion in exports with tariffs, the economic impact on the U.S. will be far greater.
“An escalating of the trade war on top of a slowing economy is a bad recipe,” Mr. Dollar said.
https://www.wsj.com/articles/u-s-economic-strength-gives-trump-leeway-in-trade-fight-with-china-1530908909 (paid subscription)
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