Growing trade war with China puts economy at risk
President Trump slapped a fresh round of tariffs on Chinese exports last week, escalating his year-long trade war and roiling global markets, after China showed little sign of softening in the latest round of talks. Trump said the U.S. would impose a 10 percent duty on another $300 billion in Chinese exports on Sept. 1, adding to 25 percent tariffs already levied on $250 billion in goods. The announcement came one day after U.S. negotiators returned from fruitless talks in Shanghai—and Trump castigated China for breaking a promise to buy American farm products he claims Chinese President Xi Jinping made in June. “That is the problem with China, they just don’t come through,” Trump tweeted. China responded by devaluing the yuan to its lowest level against the dollar since 2008 and vowing to halt American farm imports while also taxing those recently purchased.
The effects of the new tariffs could quickly become apparent in stores: Sixty-two percent of the products slated for tariffs are consumer goods, including apparel and footwear, toys, and cell phones. By one estimate, the cost of an iPhone will jump $75 to $100. Stocks retreated globally on the news, including a 2.9 percent tumble in the Dow Jones industrial average. That was the index’s worst single-day performance since Dec. 24, as investors braced for the possibility of a protracted global slump. In the U.S., Moody’s Analytics raised the chances of recession over the next year to 50 percent from 35. Trump’s tariffs came one day after the Federal Reserve cut interest rates for the first time since 2008, partly, Chairman Jerome Powell said, in response to “downside risks” from “trade tensions.”
What the editorials said
Trump’s latest tariff salvo is “no more likely to produce” a deal than previous rounds, said Bloomberg.com. The pain of the levies is primarily felt by not by China, but by U.S. consumers shouldering higher costs and manufacturers who must overhaul intricate supply chains. Moreover, Trump’s unreasonable demands have unwisely painted “any prospective compromise as a Chinese surrender.” He would have done better to find ways to give China an out and spin concessions as being in China’s interest.
Trump’s “trade war has now become a currency war,” said The Wall Street Journal. After China devalued the yuan, the U.S. Treasury Department branded China “a currency manipulator”—a provocative designation that can trigger still more tariffs. Global markets tanked. Any further devaluation could trigger a “debt crisis” among Chinese companies that must service hundreds of billions of dollars in debts with a devalued yuan. If China’s economy plunges into recession, it will “end badly for everyone.”
What the columnists said
This trade war is pushing us into what former Treasury Secretary Larry Summers calls “the most dangerous financial moment since the 2009 Financial Crisis,” said Heather Long in The Washington Post, The consensus on Wall Street is that “it’s going to get worse before it gets better.” U.S. economic growth has already cooled to a 2 percent pace. Now the tariffs dampen the prospects even more, and “the bond market is signaling a coming recession.”
Ironically, the market’s stumble over China and the weakening economy could give Trump the rate cut he wants from the Fed, said Shuli Ren in Bloomberg.com. Trump used the yuan devaluation as a cudgel to “berate the Fed” and push for lower interest rates. “As Beijing well knows, sometimes a leader’s belligerence toward other nations is really aimed at an audience at home.”
Trump is fighting the right fight at the right time, said Salvatore Babones in NationalInterest.org. China is feeling real pain as manufacturers flee to Vietnam and India while the American economy employs “record numbers of people.” Over time, China will only become stronger and protecting American intellectual property will be more difficult. “If 1989 was the historical moment to squeeze the Soviet Union, then 2019 is the historical moment to squeeze China.”
With his latest gambit, Trump is jeopardizing his chances in 2020, said Jennifer Rubin in The Washington Post. His staunch red-state supporters took another blow when China vowed to stop buying U.S. agricultural products. With a “suicidal” trade war, Trump eliminates “the sole rationale for his reelection: the economic recovery.” ■