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Why Trump Can’t Spin the Trade War

President Trump has spent the last few days furiously tweeting false claims about who is bearing the cost of his trade war.

Why Trump Can’t Spin the Trade War
U.S. President Donald Trump. (Photographer: Kevin Dietsch/Pool via Bloomberg)

(Bloomberg Businessweek) -- President Trump has spent the last few days furiously tweeting false claims about who is bearing the cost of his trade war with China. Trump insists— wrongly—that China is paying billions of dollars in tariffs, rather than U.S. consumers and businesses. Nearly every expert, including his top economic adviser, Larry Kudlow, disagrees.

It’s hardly the first time Trump has claimed a policy is working the way he wants it to, when empirical evidence says otherwise. He’s had some success with this tactic: Since his presidential campaign launch in 2015, for example, he’s portrayed migrants as marauding savages bent on harming Americans to justify his hardline immigration policy, when numerous studies show no causal link between immigration and crime, not even among illegal immigrants

The reason Trump’s claims resonate so powerfully with certain voters is that they don’t have any personal experience that would cause them to doubt what the president and Fox News are telling them. Studies show that people who hold the most negative views of immigrants have the least amount of contact with them, while those who do interact with them tend to feel more positively. 

The trade war is different. By design, its effects are spread throughout the U.S. economy. A new Goldman Sachs report makes clear that U.S. consumers are shouldering the entirety of the economic burden:

New evidence on the effects of the 2018 tariff rounds from two detailed academic studies points to larger effects on U.S. consumer prices than we had previously estimated, for two reasons. First, the costs of U.S. tariffs have fallen entirely on U.S. businesses and households, with no clear reduction in the prices charged by Chinese exporters. Second, the effects of the tariffs have spilled over noticeably to the prices charged by U.S. producers competing with tariff-affected goods.

Unlike immigration, the Chinese retaliatory tariffs were felt acutely by some of Trump’s most fervent supporters. Take farmers. As I documented last spring, the 30 congressional districts most reliant on soybeans for economic activity all voted for Trump in 2016. Since then, their pain has only intensified. This week, soybean prices fell to the lowest level in 12 years.

But if Trump follows through on his threat to impose a broad new round of tariffs, the number of Americans affected would grow dramatically. The initial wave of $250 billion focused on intermediate or capital goods: the sorts of materials businesses use to make finished products. The next round will focus on $300 billion of consumer goods, everything from iPhones to golf clubs to coffee makers to t-shirts and sweaters. As Bloomberg News put it on Monday, anyone who shops at a mall will become a victim of the trade war. One estimate puts the annual cost at $500 per U.S. family. Collectively, it’s enough of a hit that Goldman Sachs estimates inflation could rise by half a percentage point, while Moody’s Analytics says it could shave 0.8 percentage points of U.S. growth by late next year. 

In other words, there will be no ducking the effects. 

Trump can still get away with his riffs on murderous immigrants because the crowd he’s appealing to isn’t likely to encounter evidence that would contradict his claims. But plenty of Trump supporters can see that his trade war is worsening their lot. If he pushes ahead with another $300 billion of tariffs, the number of people who find themselves worse off will grow to include just about everybody. And Trump will have a hard time peddling the notion that China is showering the U.S. with an economic windfall because their own lives will tell them otherwise.

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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