On Tuesday, the stock market plummeted in the wake of President Trump’s troubling tweets about the possibility of a renewed trade war with China. Despite Trump’s signals on Monday that he was backing off of a trade confrontation with China, he doubled down on Twitter on the supposed inherent good of tariffs themselves, going so far as to dub himself “a Tariff Man”:
Trump’s economic team has spun his knee-jerk protectionism as a tactic designed to negotiate “better” trade deals – but so far, those better trade deals don’t seem to be stronger than the status quo ante. Greg Ip of The Wall Street Journal points out that Trumpian tariffs have not affected the broader American economy thus far, but that the markets fear that could change in 2019:
The accumulating list of irritants and flashpoints between the U.S. and its trading partners could spill over through other, less obvious channels such as confidence, financial markets and investment, compounding other threats such as rising U.S. interest rates and capital flight from emerging markets… Chad Bown, a trade expert at the Peterson Institute for International Economics, estimates that 12% of U.S. imports were covered by tariffs in September. Assuming Mr. Trump goes ahead and hits the remainder of Chinese imports, that will top 20%.
While tariffs alone shouldn’t destroy the economy, they certainly add weight to the burden of other problems: falling oil prices, slowing real estate markets, the flattening of the yield curve thanks to “hawkish” comments from the Federal Reserve, and the sinking stock market. None of this is a recipe for economic health. We are now nearly a full decade into economic recovery. Investors are obviously wary that that recovery may slowly be turning in a negative direction. President Trump’s economically illiterate trade commentary won’t help – and is driving American allies to ramp up their own trade barriers to retaliate.