U.S. President Donald Trump speaks to members of the media on the South Lawn of the White House after arriving on Marine One in Washington, D.C., U.S. (Photographer: Tasos Katopodis/Bloomberg)

Three Reasons Trump’s Trade War Will Become a Pain for the U.S. Economy

(Bloomberg) -- President Donald Trump’s trade war with China is about to start causing some real pain for the U.S. economy, according to Bank of America Corp. analysts.

While the tariff fight has so far made a bigger dent on China’s growth and the large-scale impact on the U.S. seems to be muted, that’s likely to change in the coming months, economists Ethan Harris and Aditya Bhave said in a report Friday. They gave three reasons:

  • Any escalation of the trade war “would be much more painful” after the Trump administration sought to avoid tariffs on widely-used consumer products and exempted products without easy substitutes.
  • The trade war seems to be increasingly affecting U.S. consumer and investor confidence as the stimulus fades from the tax cuts and government-spending boost.
  • The U.S. has “limited room to loosen policy” both on the fiscal and monetary sides, while China is using its “full arsenal of stimulus tools.” The U.S. government’s political gridlock makes a fiscal boost unlikely, while the Federal Reserve will be reluctant to cut interest rates with unemployment already so low.

“The upshot is that while China is currently slowing faster than the U.S., by the spring we expect growth in China to start to pick up, even as the U.S. continues to slow down,” Harris and Bhave wrote. “Everyone loses in a trade war.”

Of course, determining the trade war’s full impact on the U.S. economy would probably require the partial government shutdown to end: If it drags on, gross domestic product figures due later in January from the Commerce Department would be delayed because it’s one of the agencies whose funding has lapsed.

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