Trump's Trade War With China Has Failed Spectacularly, And It Now Might Bring Down The Global Economy
Over the past week, the reality of the trade war's failure to achieve any of its goals in reforming the Chinese economy has become clear to Trump. After meeting with their Chinese counterparts in Shanghai, Lighthizer and Mnuchin informed the President that China was unwilling to make any of the structural reforms that they sought on intellectual property, forced technology transfers, and state subsidies to exporters. Even worse, China had largely backtracked on their "promise" at the G20 to increase purchases of US agricultural exports that Trump had touted as a major victory. After 18 months of the trade war and the resulting decimation of US agriculture, sharply reduced American exports, and rapidly slowing manufacturing growth, what does Trump have to show for his efforts? Nothing at all.
The question now is how does Trump respond to this failure, and will he be willing to take the American and global economies to the brink of recession in an attempt to keep one of his signature campaign promises. Last Thursday, Trump went against the advice of all of his economic advisers when he announced the imposition of new tariffs of 10% on $300 billion of Chinese exports, a move which has sent the S&P 500 down almost 5% over the past 5 days. He has also continued to threaten to raise these new tariffs from 10% to 25%, a move that Morgan Stanley forecasts would lead to a global recession within 9 months. And with China on Sunday moving to devalue their currency and end all purchases of US agricultural exports, it is very possible that Trump could retaliate in a way that leads to global economic chaos.
Weekly Notes On The Economy is a weekly column that NDN writes on the most recent economic news, policy, and data.