How Trump's Trade War Is Roiling Global Commerce: QuickTake
(Bloomberg) -- U.S. President Donald Trump went on the warpath in 2018. He triggered a global trade showdown to punish — and try to extract concessions from — countries he said engaged in unfair practices, such as stealing American technology, subsidizing industries and dumping cheap products abroad. His tariffs, designed to punish countries for imposing duties on U.S. goods, roiled global commerce. As the levies began to disrupt supply chains and raise prices for manufacturers and consumers, there was growing concern the trade war would crimp economic growth and undermine the World Trade Organization, the international body that negotiates, monitors and mediates trade rules.
1. Why did Trump invite this fight?
He routinely points to the large U.S. trade deficit, the difference between imports and exports, as a symbol of a declining manufacturing base and the loss of American might. He aims to reduce the goods-and-services gap, which totaled $566 billion in 2017, by cajoling U.S. companies to import less and export more.
2. What has he done?
In January, he imposed tariffs on solar panels and washing machines made outside the U.S. (Tariffs act like a tax on imports.) Then he levied duties on steel and aluminum from most countries, including allies Canada, Mexico and the European Union. They retaliated with tariffs on U.S. goods. Trump in stages slapped duties on $250 billion of goods from China, including furniture and food, and said he’d consider adding goods worth $267 billion to the hit list. All told, he threatened or imposed tariffs on virtually all products from China, which struck back with duties on almost all U.S. goods entering the country. Trump also considered tariffs on autos.
3. Will Trump’s strategy work?
It depends on who blinks first and whether U.S. trading partners offer to cap their exports or meet U.S. demands. Trump’s threat to abandon the North American Free Trade Agreement prompted Canada and Mexico, the two other signatories of that treaty, to agree to revisions. Tariffs on metals had the EU also seeking a deal, but China appeared less willing to bend. Meanwhile the U.S. trade deficit widened in 2018, partly because the stronger dollar made U.S. exports pricier.
4. What’s the economic effect?
That’s still playing out. In the U.S., the trade war alarmed business leaders, who largely support existing trade deals. As of mid-2018, however, U.S. economic growth remained buoyant, with economists partly crediting Trump’s tax cuts. The International Monetary Fund cut its forecast for global growth in 2018 and 2019 by 0.2 percentage point, in part blaming trade tensions.
5. How about in China?
The trade fight came at a time when the Chinese economy was already slowing, and in September it helped push the country’s benchmark stock gauge to its lowest level since 2014. Should Trump apply all threatened tariffs, the fallout would shave 1.5 percentage points off China’s economic growth, Bloomberg Economics estimates. The tensions also dragged down other Asian financial markets, including those in India and Indonesia.
6. Who are some of the winners?
Metals tariffs have helped producers with American plants, such as ArcelorMittal, U.S. Steel and Nucor. They’re charging higher prices, and some have reopened shuttered sites. But some companies that initially benefited from tariffs have become victims. Whirlpool Corp., for example, added 200 jobs in the U.S. after Trump put tariffs on washing machines, but it was then hurt by levies on steel. Passing on higher raw materials costs, Whirlpool and other washing-machine makers raised prices 15 percent on average, which battered sales. One study projected that steel and aluminum duties might kill 16 jobs for every 1 gained by metal producers.
7. And some of the losers?
Caterpillar, General Motors, Harley-Davidson and other U.S. manufacturers say tariffs have pushed costs up and profits down. Harley-Davidson Inc. said it’s shifting some production overseas to avoid retaliatory tariffs. U.S. farmers have been victims of the backlash, prompting the government to provide $12 billion in bailout funds. Chinese exporters also felt the squeeze, leading the government to offer tax rebates for hundreds of products in September.
8. Can’t the WTO resolve the dispute?
Both the U.S. and China justify their tariffs under domestic laws. That could limit the global trade body’s ability to mediate, undermining the rules-based system for global trade.
The Reference Shelf
- Research from Bloomberg Economics of the impact of the trade war on China.
- QuickTake explainers on why trade deficits aren’t necessarily bad, Trump’s claim that China stole U.S. intellectual property, the 1962 law Trump cited for his steel tariffs and lessons from the last trade war.
- Why Trump’s treat to abandon in the WTO could be its saving grace.
- Why Trump’s steel and aluminum tariffs might set a bad precedent.
- China stands to gain from Trump’s steel tariffs, Michael Schuman writes in Bloomberg Opinion.
©2018 Bloomberg L.P.