Trump's burgeoning trade war with China is starting to get dangerous for the economy
- The trade war between President Donald Trump and China is heating up after tariff threats escalated.
- Comments from top Trump administration officials suggest the trade tensions will not dissipate anytime soon.
- According to economists, the size of Trump's newest trade threats risk putting an even bigger dent in the US economy.
There appears to be no end in sight for the growing trade war between President Donald Trump and China, and US consumers could soon start feeling the squeeze.
The battle between Trump and Beijing has kicked into high gear over the past week, with the two sides trading back-and-forth tariffs on $50 billion worth of imports on Friday and the president threatening more tariffs on another $200 billion worth of imports on Monday.
While the threat of a new massive tariff is just that - a threat - the Trump administration's antagonistic rhetoric toward China appears to indicate that the battle isn't going to end anytime soon.
"You see what's happening with China," Trump said Tuesday during a speech to the National Federation of Independent Businesses. "We have no choice. This should have been done many years ago. We have no choice."
Peter Navarro, Trump's most protectionist trade adviser, blasted China during a briefing with reporters on Tuesday. He said China's previous attempts to diffuse the situation - China reportedly offered to purchase billions of dollars worth of US agricultural and energy products - were not enough.
"At the end of the day, at this point in time, I think that the other side may have underestimated the strong resolve of President Donald J. Trump," Navarro said. "If they thought they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property, that was a miscalculation. We hope going forward there are no more miscalculations."
Navarro also indicated that there were no planned trade talks with China but said the administration is willing to hold discussions.
"Our phones lines are open, they've always been open," Navarro said.
Other, less hawkish members of the Trump administration have echoed Navarro's thoughts. During a speech in Detroit on Monday, Secretary of State Mike Pompeo attacked China.
"It's the most predatory economic government that operates against the rest of the world today," Pompeo said. "This is a problem that is long overdue in being tackled."
Despite the harsh words from high-level officials, Navarro tried to downplay the economic downsides of the tariffs, calling them "relatively small" and insisting the eventual results of the fight would be positive.
"Our view is that these actions are necessary to defend this country and they are ultimately bullish for corporate America, for the working men and women of America, and for the global trading system," Navarro said.
US businesses, consumers stuck in the middle
Caught in the middle of the fight between Trump and Beijing are US consumers and businesses.
"Let's hope that Americans wake up in time to understand this reality that they, not the Chinese, will be the ones hurt the most by their president's insistence that they should pay high prices for imports, including those that are used by many US manufacturers," Veronique de Rugy, a senior research fellow at George Mason University' Mercatus Center, said Tuesday.
Tariffs drive up the cost of goods coming into the US, forcing businesses to pay more for imported goods or buy more expensive domestically produced goods. This causes costs to increase for businesses that use those goods as parts for their final product. In turn, these firms either have to absorb those new costs or pass down price increases to consumers.
According to Deutsche Bank economists Brett Ryan, Peter Hooper, and Matthew Luzzetti, Trump's tariff threats will push up inflation and result in a drag on economic growth.
- "Our analysis indicates that such a further escalation of the trade dispute to include $200 billion of imports could reduce real GDP growth by roughly -0.2 to -0.3 percentage points," the trio said in a note to clients.
- "In addition, the effective $32.5 billion 'tax' on imported goods could have the effect of boosting core PCE inflation by roughly 0.15 percentage points."
In essence, they said, consumers will pay more for goods that are subject to tariffs and buy less as a result, which would slow the growth of the US economy.
Gregory Daco, the chief US economist at Oxford Economics, estimated that Trump's new tariff threat would shave 0.3 to 0.4 percentage points off GDP. He warned there are two reasons to believe it also poses an even larger indirect problem for US firms.
- "First, the tariffs on $200 billion of imports would affect a wide array of business sectors including some with significant supply chain multipliers (i.e. sectors where each dollar of activity generates more than a dollar of activity in other sectors)," Daco said.
- "Second, the potential financial market and confidence impact would be substantial."
Several industry groups covering everything from auto manufacturers to winemakers sent a letter to GOP lawmakers urging Congress to step in and block Trump's tariffs. Even the Business Roundtable, an influential business lobby, urged the president to step back from the trade fight.
"Quadrupling down on a 'shoot first' approach with the Chinese government will only make it harder to achieve a fair and level playing field for American companies to compete in China," the group said in a statement. "Risking a trade war with more tariffs will only invite more retaliation that will cause significant harm to the US economy."
But the ongoing rhetoric between Beijing and the Trump teams has left little hope for a quick solution.
"There will likely be no rest for the weary among trade warriors and their watchers in the months ahead," the Deutsche Bank economists said.