Josh Barro and Benjamin Hart, NYMag: What Does a Trade War Worst-Case Scenario Look Like?
Ben: You wrote in a post today that China’s weakening of its currency reduces the cost of U.S. exports, which makes Chinese goods less expensive for American consumers. On the flip side, it makes American goods pricier and less appealing to foreign buyers. Does it seem to you that the hit to U.S. manufacturers is why the stock market is freaking out today (it closed down 767 points), or is it more because this latest move indicates that China isn’t backing down an inch?
Josh: It’s not specifically the hit to U.S. manufacturers. The outlook for them is mixed — some will benefit from protection from the tariff when selling to the domestic market (the weaker yuan offsets the tariff cost only partially), and for others that will be offset by greater difficulty exporting goods and by overall economic weakness.
But the escalating trade war is bad for a variety of other U.S. industries. It’s bad for companies, like retailers that buy Chinese goods — they may not be able to pass the whole tariff cost on to consumers, and consumers may buy less because prices go up and the economy is weaker.
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WNU Editor: Some believe the President Trump’s trade war is getting out of hand …. Donald Trump’s Trade War with China Is Spiralling Out of Control (John Cassidy, New Yorker). My take is different. This trade war has actually been going on for a very long time, the difference now is that the U.S. is doing something about it. And as for the dire predictions on the U.S. economy if this trade war continues. There is a problem with that analysis. The U.S. economy is still growing at a rate that has not been seen for years, unemployment is at a historic low, and there are real wage gains across the board. Main street America has not been impacted by this trade war, and as long as that continues, President Trump will not reverse his trade policy and strategy.