Trump’s Damage to International Trade Will Take Years to Repair
America’s allies no longer trust Washington and are making free-trade deals that leave the U.S. out.
By Peter Coy
......
That makes Trump a big problem for Big Business. U.S. corporate leaders soft-pedaled their criticisms of his trade policies in the past because they hoped he’d come around to their point of view. And they were grateful for his strong support on two other key priorities: tax cuts and deregulation. Now they worry that waiting for the squall to pass may be a mistake because real damage could be done in the meantime.
You can sense the frustration in Joshua Bolten, a free-trade Republican who was President George W. Bush’s chief of staff and is president of the Business Roundtable, an organization of large-company chief executive officers. He testified on July 12 against the tariffs Trump has unilaterally imposed on steel, aluminum, and other products. “I have heard people in the administration say, ‘You know, OK, but don’t worry, it’s going to get resolved, it’s going to take a little, everybody needs to absorb a little pain in the short run,’ ” Bolten told Trump critic Bob Corker of Tennessee, chairman of the Senate Foreign Relations Committee. Bolten rejected such reassurances: “When you disrupt supply chains, when you demonstrate that we are an unreliable trading partner, you lose those relationships permanently.”
U.S. financial markets have largely shrugged off fears of a trade war because the amount of goods covered by higher tariffs is small. The S&P 500 stock index is up 5 percent this year. Economists estimate that the tariffs imposed so far would knock no more than a tenth of a percentage point off the growth rate. “I think the market is right in thinking that the most likely outcome is that free trade survives but with tweaks,” says Mohamed El-Erian, a Bloomberg Opinion columnist and chief economic adviser at Allianz SE. Speaking to Bloomberg News on July 16, BlackRock Inc. CEO Larry Fink said, “Right now it’s all talk.”
The Real Winners and Losers of Trump’s Trade War Speak Up
Still, the threats and counter threats create uncertainty that may induce businesses to hold back investment in new plants and equipment, known as capital spending, or capex. “Global business sentiment, linked to positive news on profits, has been an important driver of the recent global capex upturn,” JPMorgan Chase & Co. economists wrote on July 13.
And all bets are off if the trade war goes hot. Fink warned that stocks could fall 10 percent to 15 percent if the Trump administration approves tariffs on an additional $200 billion of Chinese imports. Although El-Erian says the U.S. could face down China in a trade war because China, which exports more to the U.S. than vice versa, has more to lose, he says, “There’s a reason you don’t embark on this approach lightly. You can end up in massive confrontation.”
That’s the immediate risk. In the longer term, trade barriers make the global economy permanently less efficient because sheltered economies produce things that could be made more cheaply elsewhere. The Organization for Economic Cooperation and Development estimated this month that if countries restored their tariff rates to their 1990 levels, wiping out almost 30 years of reductions, world average living standards in 2060 would end up about 14 percent lower than in the OECD’s baseline scenario. “Short-lived disputes can have very long-term consequences,” says Jamie Thompson, head of macro scenarios at Oxford Economics.
more:
http://www.bloomberg.com/news/articles/2018-07-19/trump-s-damage-to-international-trade-will-take-years-to-repair
| 