Trump Seen Following Through on Threat to Impose China Tariffs
(Bloomberg) -- President Donald Trump will probably impose some of the tariffs he has threatened to slap on Chinese imports, though the broad impact on the world’s two largest economies will be negligible, according to a survey of economists.
However, economists do expect some reduction in America’s $375 billion trade deficit in merchandise with China, which would let Trump potentially claim a degree of success. Respondents see the gap narrowing to $350 billion next year and $300 billion in 2020, according to median estimates in the Bloomberg News poll conducted May 14-17.
Half of the 22 economists polled by Bloomberg expect Trump to impose tariffs on $50 billion in Chinese goods this year. Such forecasts indicate skepticism that this week’s visit to Washington by Liu He, President Xi Jinping’s top economic adviser, will produce a lasting truce in talks with Trump or his administration.
Trump said Thursday he doubts the two nations can come to an agreement over trade, arguing that China has become “very spoiled” by the economic advantages it enjoys. The president met with Liu Thursday after Bloomberg News conducted the survey.
Trump is likely to follow through on at least some of his tariff threats to satisfy his political base of supporters in the lead-up to the midterm congressional elections in November, said Gregory Daco, U.S. chief economist at Oxford Economics.
“Looking at the political landscape, I think there will be some tariffs imposed on China, which will be followed by retaliation, but the U.S. tariffs will be very calculated so they don’t hurt the economy,” he said by phone.
Daco expects the effect of the tariffs on U.S. growth and inflation to be “barely noticeable.” That’s in line with the median estimates in the Bloomberg survey for $50 billion in tariffs to produce a drag on economic growth of 0.1 percentage point and a similar boost to inflation. Still, Daco sees tensions between Beijing and Washington persisting, creating uncertainty for investors.
In China, the government will offset the drag from tariffs through measures such as fiscal spending or credit expansion, in order to meet the official growth target of about 6.5 percent, said Ding Shuang, head of Greater China economic research at Standard Chartered Plc in Hong Kong.
Trump in March proposed levying duties on $50 billion in imports from China, after the U.S. Trade Representative’s office concluded the Asian nation violates American intellectual property in a variety of ways, including by forcing U.S. companies to transfer technology. Last month, after Beijing promised to respond in kind, the president instructed his officials to consider tariffs on an additional $100 billion in Chinese products.
None of the economists surveyed predict the Trump administration will impose tariffs on the full $150 billion under consideration. One respondent predicted the U.S. will apply duties to $100 billion in imports, while five economists don’t expect any new tariffs against China.
Trump raised eyebrows this week when he instructed his officials to extend a lifeline to Chinese telecom-equipment maker ZTE Corp., after the U.S. cut off the firm from its American suppliers for allegedly lying to the U.S. government. The move raised hopes that the two countries will avoid a trade war.
Trump has repeatedly complained about the U.S. trade deficit, arguing that other countries have taken advantage of America’s relatively open markets. Prominent economists from Lawrence Summers to Gregory Mankiw have criticized Trump’s preoccupation with cutting the U.S. trade gap, arguing the deficit isn’t the best indicator of economic health.
On a recent trip to Beijing, senior Trump administration officials presented a list of demands to their Chinese counterparts, including that the U.S. trade gap be reduced by $200 billion over the next two years.
Trump may get about one-third of the way there, narrowing the gap to $300 billion in 2020, according to Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd.
“If there’s a trade war, it’s mutually negative for both, but for China it’s much worse,” said Shen, who formerly worked at the International Monetary Fund and European Central Bank. “China will just increase imports from the U.S., but maybe at the expense of other countries,” said Shen, who expects “positive results” from Liu’s talks in Washington.
But Daco, of Oxford Economics, predicts the U.S. merchandise-trade deficit with China will grow to $440 billion by 2020, driven by the fiscal stimulus being implemented by the Trump administration and the Republican-controlled Congress.
“We’ll see an ongoing increase in the trade deficit that lines up with domestic factors in the U.S. economy,” he said.
James Smith, chief economist at Parsec Financial Management Inc. in North Carolina, said Trump should be able to convince China to lower some of its trade barriers, causing the trade gap to narrow.
“There are at least tens of billions of dollars worth of products that we’re not allowed to export to China,” Smith said. “I hate to say there really is a method to his madness, but it’s always possible.”
©2018 Bloomberg L.P.