‘Trump’s Trade War’ rattles world markets, will cost American consumers more money

President Trump on Thursday directed the US trade representative to level tariffs on about $50 billion worth of Chinese imports. Why Trump’s tariffs on China are a big deal:

In the next 15 days, US Trade Representative Robert Lighthizer will publish a list of products that his team intends to hit with tariffs. It’s not clear how high the individual tariffs will be.

The United States also plans to impose new investment restrictions and take action against China at the World Trade Organization.

The trade conflict between China and the U.S. escalated, with Beijing announcing its first retaliation against metals levies hours after President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged there’s more on the way. China Hits Back on Trump Tariffs as Europe Off Hook for Now:

On Friday, China unveiled tariffs on $3 billion of U.S. imports in response to steel and aluminum duties ordered by Trump earlier this month. The White House then declared a temporary exemption for the European Union and other nations on those levies, making the focus on China clear. Though Beijing’s actions so far are seen by analysts as measured, there may be more to come.

“Trump’s Trade War” has caused a decline in world markets:

Equity indexes from Tokyo to Frankfurt tumbled with European equities falling to the lowest in more than a year. U.S. stock futures dropped, signaling a further retreat for the S&P 500 Index after it fell 2.5 percent, on risks a further escalation in trade tensions will undermine an unusual phase of synchronized global economic growth.

On Thursday, the Dow closes down more than 700 points on fear of U.S.-China trade war:

Markets plunged Thursday amid fears President Trump’s new tariffs would start a global trade war, with the Dow Jones industrial average closing 724 points down as the Nasdaq Composite and the Standard & Poor’s 500 index also nose-dived.

Markets have been shaky for several weeks since the president announced a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.

Stocks on Wall Street closed lower on Friday, ending the worst week for the Standard & Poor’s 500-stock index in two years, as investors weighed a brewing trade war between China and the United States that could hobble an otherwise healthy global economy. Wall St. Closes Lower, as a U.S.-China Trade War Looms:

Markets in New York tumbled through the afternoon. The Standard & Poor’s 500-stock index closed 2 percent lower, and the Dow Jones industrial average lost about 1.8 percent. The Nasdaq composite — hurt by falling share prices in a number of technology companies — lost about 2.4 percent.

Fears of a trade war — fueled by tariffs announced by President Trump and in Beijing — caused markets worldwide to shudder.

Benchmark indexes in London, Paris and Frankfurt closed lower on Friday. Losses in Asia were much greater. In Tokyo, major exporters like Toyota and Sony helped to lead a 4.5 percent drop in the key index. Shares in Shanghai closed down 3.4 percent. South Korean stocks fell 3.2 percent.

Oil futures jumped more than 5 percent, the biggest gain in eight months.

Overall, the S.&P. fell 6 percent over the week.

That bogus “Trump Rally” is over, now that reality has set in. So how is your 401K and/or other retirement investments doing?

And this is going to cost American consumers more money. Trump tariffs on China imports could raise prices for shoppers:

President Trump’s move to impose hefty tariffs on Chinese imports and retaliation threats from China set off fresh worries Friday about higher prices for American consumers and steep sales losses for U.S. businesses.

Trump said this week he’ll slap 25% tariffs on $50 billion to $60 billion in Chinese exports to the U.S., including aerospace, information and communication technology, and machinery. The move is aimed at countering Chinese cyber and intellectual property theft of U.S. technology. It also tries to push back against China’s demands for technology transfers from U.S. companies in return for access to China’s market.

The Chinese government, in turn, said it would hit U.S. shipments to China with $3 billion in tariffs, affecting goods such as pork, aluminum pipes, steel and wine.

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, expects China to impose additional, more damaging tariffs on U.S. goods comparable to the $60 billion Trump announced this week.

He estimates the conflict would trim economic growth by about a two-tenths of a percentage point this year and a tenth next year, including the effects from the steel and aluminum duties. The economy has been projected to grow 2.5% to 3% during that period. The bigger risk, he says, is that the current skirmishes mushroom into a global trade war.

U.S. officials have said the latest tariffs will be imposed in a way that minimizes the impact on consumers. They also could be lessened. Trump says he’ll seek comment from business groups before finalizing the proposal.

But Hun Quach, vice president of international trade for the Retail Industry Leaders Association, said: “There’s no way to impose $50 billion in tariffs on Chinese imports without having a negative impact on American consumers. Make no mistake, these tariffs may be aimed at China, but the bill will be charged to American consumers who will pay more at the checkout for the items they shop for every day.”

And Matthew Shay, CEO of the National Retail Federation, says a trade war will erase the benefits of the recent tax cuts “and result in higher prices for a wide range of consumer products and basic household goods.”

Which means it’s time to check in with the professor, Paul Krugman at the New York Times today. Bumbling Into a Trade War:

“Trade wars are good, and easy to win.” So declared Donald Trump a few weeks ago, after announcing tariffs on steel and aluminum. Actually, trade wars are rarely good, and not at all easy to win — especially if you have no idea what you’re doing. And boy, do these people not know what they’re doing.

It’s odd, in a way. After all, trade is clearly an issue about which Trump is truly passionate. He tried to kill Obamacare, but to all appearances his main concern was tarnishing his predecessor’s legacy. He wanted a tax cut, but more to score a “win” than because he cared about what was in it. But reducing the trade deficit has been a long-term Trump obsession, so you might expect him to learn something about how world trade works, or at least surround himself with people who do understand the subject.

But he hasn’t. And what he doesn’t know can and will hurt you.

In the case of steel, here’s what happened: First came the splashy announcement of big tariffs, ostensibly in the name of national security — infuriating U.S. allies, which are the main source of our steel imports. Then came what looks like a climb-down: The administration has exempted Canada, Mexico, the European Union and others from those tariffs.

Was this climb-down a reaction to threats of retaliation, or did the administration not at first realize that the tariffs would mainly hit our allies? Either way, Trump may have gotten the worst of both worlds: angering countries that should be our friends and establishing a reputation as an untrustworthy ally and trading partner, without even doing much for the industry he was supposedly trying to help.

Now comes Trumptrade II, the China Syndrome. On Thursday the administration announced that it would levy tariffs on a number of Chinese goods, with the specifics to be detailed later. How will this one work out?

Let’s be clear: When it comes to the global economic order, China is in fact a bad citizen. In particular, it plays fast and loose on intellectual property, in effect ripping off technologies and ideas developed elsewhere. It also subsidizes some industries, including steel, contributing to world excess capacity.

But while his coterie mentions these issues, Trump seems fixated on the U.S. trade deficit with China, which he keeps saying is $500 billion. (It’s actually $375 billion, but who’s counting?)

What’s wrong with this fixation?

First of all, much of that big deficit is a statistical illusion. China is, as some put it, the Great Assembler: Many Chinese exports are actually put together from parts produced elsewhere, especially South Korea and Japan. The classic example is the iPhone, which is “made in China” but in which Chinese labor and capital account for only a few percentof the final price.

That’s an extreme example, but part of a broader pattern: Much of the apparent U.S. trade deficit with China — probably almost half — is really a deficit with the countries that sell components to Chinese industry (and with which China runs deficits). This in turn has two implications: America has much less trade leverage over China than Trump imagines, and a trade war with “China” will anger a wider group of countries, some of them close allies.

More important, China’s overall trade surplus is not currently a major problem either for the United States or the world as a whole.

I use the word “currently” advisedly. There was a time, not that long ago, when the U.S. had high unemployment and China, by keeping its currency undervalued and running big trade surpluses, made that unemployment problem worse. And at the time I was calling for the U.S. to play hardball on the issue.

But that was then. Chinese trade surpluses have come way down; meanwhile, the U.S. no longer has high unemployment. Trump may think that our trade deficit with China means that it’s winning and we’re losing, but it just ain’t so. Chinese trade — as opposed to other forms of Chinese malpractice — is the wrong issue to get worked up over in the world of 2018.

And here’s the thing: By bumbling into a trade war, Trump undermines our ability to do anything about the real issues. If you want to pressure China into respecting intellectual property, you need to assemble a coalition of nations hurt by Chinese ripoffs — that is, other advanced countries, like Japan, South Korea and European nations. Yet Trump is systematically alienating those countries, with things like his on-again-off-again steel tariff and his threat to put tariffs on goods that, while assembled in China, are mainly produced elsewhere.

All in all, Trump’s trade policy is quickly turning into an object lesson in the wages of ignorance. By refusing to do its homework, the Trump team is managing to lose friends while failing to influence people.

The truth is that trade wars are bad, and almost everyone ends up losing economically. If anyone “wins,” it will be nations that gain geopolitical influence because America is squandering its own reputation. And that means that to the extent that anyone emerges as a victor from the Trump trade war, it will be … China.