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The Trade War is Real and it Hurts


There is nothing good about a trade war. It is a vicious circle of retaliation where there are no winners, only losers. President Trump has managed to start such a war and as a result is knocking trillions of dollars in value off the stock markets and will potentially cause a decline in consumer confidence.

China recently announced plans to impose 25 percent tariffs on a large range of U.S. goods. The list includes soybeans, cars and aircraft – three key export areas – along with beef, cigars and whiskey among other items. The tariffs are tougher than expected and will hit U.S. exports, particularly in the agricultural and technology sectors. The Chinese announcement came in response to the administration’s decision to put tariffs on 1,300 Chinese products. This tit-for-tat situation does not create winners. Picking a fight with the third-largest U.S. export market makes no sense.

The World Trade Organization was set up in 1995 to help prevent trade wars via mediation and litigation. There is an exclusion allowed for national security, but nothing that has been brought into play can be deemed to fall into that category. As with free trade agreements, the WTO is being undermined by the president.

Sadly, the Smoot-Hawley Tariff Act in 1930 made the same empty promises, leading to protectionist tariffs that exacerbated the Great Depression and destabilized the international order. One of the most painful lessons of modern history has been all but forgotten. Will Trump do another U-turn? We certainly hope so.

Our projections of growth are being scaled back and will be less than was seen last year. The West Coast will be particularly impacted because of the tariffs as China represents over 60 percent of the volume of containerized imports into the United States. It may be that industry will use some of the tax windfall to offset the tariff price increases, but that would negate much of the administration’s goal of discouraging imports from China.

Los Angeles and Long Beach will be worst hit on imports, and Oakland and Seattle/Tacoma will suffer due to the impact on exports. Overall, this is a very ugly situation that could get worse.

#policy #InternationalTrade #tradewar #tariffs #imports

 

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