Trade Wars
March 9, 2020

After Russia declined Friday to participate in an OPEC price-boosting oil production cut, Saudi Arabia announced Saturday night that it's slashing oil export prices by nearly 10 percent and ramping up production. When markets opened Sunday night, New York time, things got ugly quick.

Demand for oil was already falling amid the global coronavirus outbreak. And as the market took stock of the Russian-Saudi price war, crude oil futures fell more than 20 percent, the biggest one-day tumble since a record plunge in 1991 at the start of the Gulf War. U.S. stock futures fell the maximum allowed 5 percent, and trading was halted on futures tied to the S&P 500 for the first time since President Trump's election.

This crash in oil prices will be almost certainly make gas cheaper, which is good news for drivers, but "economically, this could get very bad for Texas and North Dakota," writes oil historian Gregory Brew. Saudi Arabia's price cut and production boost are "essentially a declaration of war on U.S. producers," especially the shale drillers who've made the U.S. a major oil exporter. "Back in 2014, Saudi Arabia's campaign to crush shale eventually backfired," leaving the U.S. with greater market share, Spencer Jakab explains at The Wall Street Journal, adding:

This time, though, U.S. producers can't squeeze similar efficiency gains out of the shale patch and Wall Street is unlikely to step in with a wave of fresh capital as quickly — particularly since petroleum demand is in the process of suffering a collapse sharper than during the global financial crisis. It will be bad. But it will be worse for OPEC, and for Saudi Arabia in particular. [Spencer Jakab, The Wall Street Journal]

It will be worse for Iran and Venezuela — Russian allies — as well. So why would Moscow do this? "If you are Russia, it's worth it for you to take a three-month price hit to see if you can knock out U.S. oil exports," Amy Myers Jaffe, an oil and Middle East expert at the Council on Foreign Relations, tells The New York Times. U.S. producers will hurt, but "shale isn't gone for good," Jakab predicts. "OPEC's power may be." Peter Weber

August 14, 2019

On Tuesday, President Trump explained that he is delaying 10 percent tariffs on thousands of Chinese consumer goods until Dec. 15 "for the Christmas season, just in case some of the tariffs would have an impact on U.S. customers. ... Just in case they might have an impact on people, what we've done is we've delayed it so that they won't be relevant to the Christmas shopping season."

Analysts who had seen the list of items spared until mid-December — cellphones, video game consoles, laptops, toys, some clothing items and footwear — had already figured this out. But Trump's remarks were notable in that he finally broke from his mantra that "the Chinese are paying the full price of his tariffs," Heather Long writes at The Washington Post. "It's a line that the overwhelming majority of economists and business owners say is false, but Trump kept saying it — until Aug. 13."

U.S.-based companies pay the tariffs on Chinese imports, and a U.S. family of four would pay about $350 a year if Trump's latest tariffs took effect and the full cost was passed on to consumers, the Tax Foundation estimates. The previous round of tariffs focused on parts and supplies, and "many U.S. companies opted to absorb a lot of the added costs, effectively canceling out some of Trump's corporate tax cut," Long notes. But the new tariffs "will hit may finished goods like shoes and iPhones that are assembled fully in China," and "business owners say it's a lot more difficult to absorb those costs or find ways around them."

Most retailers will have stocked their holiday products before Sept. 1, Reuters says, but if you're inclined to last-minute shop, Trump still plans to impose 10 percent tariffs on thousands of other consumer goods in September, including Apple Watches and Fitbits, smart speakers from Google and Amazon, Bluetooth headphones, flat screen TVs, live animates, dairy products, lithium ion batteries, and golf balls, among other merchandise. Peter Weber

August 9, 2019

President Trump's latest round of tariffs on Chinese goods and decision to brand China a currency manipulator, followed by China's scrapping new purchases of U.S. agricultural goods, will hurt the economies in both countries, economists warn. A Reuters survey of economists conducted Aug. 6-8 and released Friday found that about 70 percent said the latest salvos in the escalating trade war have brought the next U.S. recession closer, 45 percent of economists surveyed said the U.S. economy will slip into recession within the next two years, and a majority predicted that the Federal Reserve will cut rates again in September and then at least once more this year.

Trump frequently complains that the Fed's rate increases have been hurting the economy and stifling growth, but a New York Times analysis Friday shows that the Fed "has kept interest rates lower than under any other president since Jimmy Carter, when adjusted for the economy's output and inflation," and "Congress has provided an unusual level of fiscal support." Those combined stimulus measures have buffered the economy against damage from Trump's tariffs and China's retaliatory measures, "but as the dispute escalates, that insulation may not be enough," the Times says. Economists warn "that the Fed, in particular, has only so much help to give."

Also Friday, the International Energy Agency reported that global demand for oil in the first half of 2019 was the weakest since 2008. The IEA also downgraded its forecasts for global oil demand — a barometer of the world's economic health — citing U.S.-China trade tensions. Peter Weber

June 27, 2019

President Trump arrived in Japan on Thursday evening, local time, for what is shaping up to be a high-stakes and contentious Group of 20 summit in Osaka. Trump is scheduled to meet one-on-one with nine world leaders, starting with Australian Prime Minister Scott Morrison, but observers are most interested in his meeting Saturday with Chinese President Xi Jinping.

Trump insisted on the meeting and has said if he and Xi don't restart trade talks, he will levy tariffs on the remaining untaxed $300 billion in Chinese imports. China will ask that Trump drop its ban on telecom firm Huawei Technologies and scale back its demands for China to buy even more U.S. exports, The Wall Street Journal reports. The U.S. believes China scuttled the last round of talks in April and is expecting China to make the first move to restart them. Xi, under pressure from nationalists at home, is not expected to offer Trump any large concessions in Japan.

Trump will also meet with Indian Prime Minister Narendra Modi, who is in a new trade dispute with Trump's administration, and the president is expected to face pushback from European leaders over his skepticism of climate change. Trump demanded in a tweet that Modi remove reciprocal tariffs on 30 U.S. products, and in an interview with Fox Business on Wednesday, Trump confirmed a report that he is considering withdrawing the U.S. from its foundational treaty with Japan. "If Japan is attacked, we will fight World War III ... with our lives and with our treasure," Trump said. "If we're attacked, Japan doesn't have to help us at all" and "can watch it on the Sony television, okay, the attack." Peter Weber

June 10, 2019

The tariff-averting agreement the U.S. and Mexico announced on Friday night doesn't appear to have many new elements or enforcement mechanisms, but it was a win-win in that both President Trump and Mexican President Andres Manuel Lopez Obrador are declaring victory.

At the same time, Trump tweeted several aggrieved defenses of the deal before heading to his golf course in Virginia on Sunday, and members of his administration insisted on Sunday talk shows that Mexico agreed to new immigration measures in the deal and that Trump's tariff threats, which frayed ties with congressional Republicans, forced Mexico to hasten or commit to things it had been reluctant to put to paper.

The 5 percent tax on Mexican imports, rising incrementally to 25 percent, would have been economically painful for U.S. consumers, especially in key states that voted for Trump, notably Texas. So not everyone was convinced Trump would actually follow through with his threat.

And Schumer did predict Trump would balk, on the Senate floor on June 4 — there's video. On Sunday, Schumer reiterated his belief that Trump's "bogus 'deal' Mexico volunteered to do months ago" follows his "bogus tariff threat even GOP in Congress rejected." And he wasn't the only Democrat who predicted Trump would find a way to declare victory. "Bet your bottom dollar, Trump will back off by the weekend," tweeted Rep. Maxine Waters (D-Calif.) on June 7, hours before the late-night deal was announced. "Just another bluff!"

It's worth noting that Mexico took Trump's threat seriously enough to send up a delegation soon after Trump threatened the new tariffs. And unlike Democrats, Mexican officials are being careful not to contradict Trump in public on the agreement. "They're just trying to say anything to come out of the mess," Ken Smith Ramos, a former top Mexican trade negotiator, tells Politico. Peter Weber

May 31, 2019

Financial markets were not pleased with President Trump's announcement Thursday that he will impose new, gradually increasing tariffs on all Mexican imports "until such time as illegal migrants coming through Mexico, and into our country, STOP." Plenty of conservatives were unhappy, too. The Heritage Foundation's James Carafano and Jack Spencer, for example, said the tariffs are "the wrong policy" to address the border "crisis" and would "punish our citizens." Phillip Klein at The Washington Examiner called it "mindbogglingly stupid on so many levels."

White House Chief of Staff Mick Mulvaney said Trump is imposing the tariffs, starting at 5 percent and rising to 25 percent, under the International Emergency Economic Powers Act, which gives presidents authority to regulate commerce during a national emergency. Republican leaders in the House and Senate were largely supportive of the tariffs, he added.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) was not supportive. "Trade policy and border security are separate issues," he said in a statement. "This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump's and what could be a big victory for the country."

The White House has just started the process toward possible ratification of the U.S.-Mexico-Canada Agreement (USMCA), an update to NAFTA, earlier Thursday, and ratification is uncertain in the House. At the Examiner, Klein agreed that slapping tariffs on Mexican goods will "surely disrupt" the USMCA ratification process, and he listed four other objections, including that the tariffs amount to "a tax increase of up to 25 percent on American families and businesses purchasing any products from Mexico, one of the U.S.'s leading trade partners."

"Congress should immediately intercede to block this reckless policy by reclaiming its traditional power over tariffs," Klein concludes. "House Democrats should pass something and force Senate Republicans to either rebuke Trump's policy, or answer for their cowardice." Grassley? Peter Weber

May 17, 2019

Agriculture Secretary Sonny Perdue said Wednesday night that he is putting together a second round of financial assistance for farmers and ranchers hit by President Trump's trade war with China. Perdue said the farm bailout will total between $15 billion and $20 billion, and include more direct payments and commodity purchases, but "many farmers doubt the scale of that aid package is anywhere near sufficient to make up for a trade spat that has shut them out of a lucrative Chinese market of 1.4 billion consumers," The Wall Street Journal reports.

"Though we are glad that the administration is considering additional assistance," Roger Johnson, president of the National Farmers Union, tells the Journal, "such temporary solutions are not sufficient to address the permanent damage the trade war has inflicted on agricultural export markets." China has retaliated against Trump's tariffs by raising tariffs on soybeans, sorghum, pork, and other U.S. agricultural products, plus slowed down purchases by state-owned companies. U.S. farm exports have plummeted and prices are at 10-year lows.

Last year, Congress approved $12 billion in trade war farm aid. So far, only $8.5 billion of that has been paid directly to farmers — and, the New York Daily News reported Thursday, $62 million of the bailout went to a Brazilian pork processing company that doesn't appear to be struggling under the trade war and is owned by two Brazilian brothers who can't leave Brazil because they are being investigated for corruption.

Agricultural areas that voted for Trump are losing patience, as The Late Show touched on Thursday night.

But the anger, despair, and financial hardship are real. "We cannot withstand another year in which our most important foreign market continues to slip away," John Heisdorffer, an Iowa soybean farmer and chairman of the American Soybean Association, tells the Journal. "Our patience is waning, our finances are suffering, and the stress from months of living with the consequences of these tariffs is mounting." Peter Weber

May 10, 2019

President Trump's threatened 25 percent tariff on $200 billion worth of Chinese exports took effect at 12:01 a.m. Friday, halfway through high-level trade talks in Washington, D.C., led by Chinese Vice Premier Liu He. The tariffs, up from 10 percent, will be in force for shipments leaving China on Friday, so there is still a little time to work out a last-minute agreement. Both sides agreed the trade talks will continue Friday, as planned.

China's Commerce Ministry said it "deeply regrets" Trump's decision and Beijing "will have to take necessary countermeasures." A ministry spokesman added, "We hope that the U.S. and China will meet each other halfway and make joint efforts to solve the existing problems through cooperation and consultation." U.S. officials said the trade talks were progressing smoothly until China sent over significant edits over the weekend, prompting Trump's tariff threat.

Equalizing the trade imbalance with China was one of Trump's big campaign themes, and "U.S. officials said Trump's 'America First' stance rocked Chinese leaders and halted the erosion of American manufacturing and technology industries by Chinese trade practices," The Washington Post notes. But the tariffs — those imposed by Trump and the retaliatory tariffs from China — are hurting both countries, economists say.

On the U.S. side, U.S.-based companies pay Trump's tariffs and pass much of that cost onto consumers, and China's retaliatory tariffs are harming U.S. agriculture and many large industries. A study in March from the World Bank's chief economist and colleagues from UCLA, UC-Berkeley, and Columbia Business School found that "workers in very Republican counties bore the brunt of the costs of the trade war, in part because retaliations disproportionately targeted agricultural sectors." Read The Week's Jeff Spross explain why Trump may have the upper hand on China anyway. Peter Weber

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