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The White Flag in Trade Wars


It turns out trade wars are not so easy to win. The Trump administration has had no real success with China, Canada and Mexico, and is in no real position to dictate to the European Union. In his recent decision not to go through with a scheduled increase of tariffs on China on March 1 while citing progress in talks between Washington and Beijing, President Trump is effectively waving the white flag of surrender. He has called the war a triumph despite a growing imbalance in trade.

Trump’s replacement for the North American Free Trade Agreement, which he repeatedly called “the worst trade deal ever” despite its landmark advances in trade between the United States, Mexico and Canada, is little changed from its predecessor, and it has yet to be approved by Congress. Meanwhile, the trade war with China is turning out not to have the dramatic results Trump expected.

The probable outcome is the withdrawal of tariffs by both sides and some assurances from China that they will buy more agricultural goods. The losers have been American families who paid higher prices for consumer goods, US manufacturers who paid more for imported parts, and US agricultural exporters who lost their Chinese markets and had to be paid off with subsidies. Imports from China did not decline – in fact, they soared to record levels – and exports decreased with the exception of crude oil. There is limited public support for an inward-looking policy on trade. Damage has been done to the nation’s reputation and it has lost the trust of allies. The global economy has also been impacted as traders have had a problem working out what U.S. policy on trade really is.

The real focus of attention for the administration should be on ensuring that the economic drivers of the economy are not weakened. The National Retail Federal has forecast that retail sales will grow between 3.8 percent and 4.4 percent in 2019, based largely on rising wages and employment. But the Purchasing Managers’ Index is weakening and the Federal Reserve has stalled interest rate rises after seeing slower growth.

Europe is in a worse state, with factories located within the EU suffering their biggest decline in orders in six years amid mounting concerns over trade tariffs and Brexit. Led by Germany and Italy, manufacturing output in the Eurozone contracted in February, with the EU Purchasing Managers' Index falling to 49.3. The US’ trading partners are also suffering from industry that is investing less and consumers who are spending less.

The impact on our short-term trade projections are clear. We entered 2019 with an upward bump, but it was due solely to tariff expectations. Volume growth rates for the rest of the year are well below 2018.

#imports #exports #tariffs #internationaltrade #tradewar

 

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