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Trump escalates China trade war

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TweetAugust 5, 2019 — The China’s People’s Daily in an interview had three questions about the US threat of August 1 to apply tariffs on the remainder of Chinese goods. As the tariff list of Trump now covers all the goods from China, economists are warning that consumers will pay more for the tariff. Do you share this concern? JF Answer: Yes, the additional tariffs — 10% on the remaining $ 300 billion of imports from China — will clearly raise the price that American consumers have to pay for many items.  This is one reason I am concerned. 2. It seems the trade war between the two countries will not end soon. Do you see any evidence that it’s having more impact on global economy? JF Answer: One would expect that a trade war between the world’s two largest economies would have an

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August 5, 2019 — The China’s People’s Daily in an interview had three questions about the US threat of August 1 to apply tariffs on the remainder of Chinese goods.

  1. As the tariff list of Trump now covers all the goods from China, economists are warning that consumers will pay more for the tariff. Do you share this concern?

JF Answer:
Yes, the additional tariffs — 10% on the remaining $ 300 billion of imports from China — will clearly raise the price that American consumers have to pay for many items.  This is one reason I am concerned.

2. It seems the trade war between the two countries will not end soon. Do you see any evidence that it’s having more impact on global economy?

JF Answer:
One would expect that a trade war between the world’s two largest economies would have an adverse impact on the world economy, and I believe that it has.  The trade war bears some responsibility for the slowdown in global growth that has taken place since last year and for the uncertain outlook.

  1. There’s more voice of discontentment here in the US as the tariffs are hurting more business. Do you see any chance that this may help Trump change his tough stance on trade?

JF Answer:

The evidence that the trade war is hurting American firms and consumers has been growing.  Few believe Trump claims that the US is benefiting from the situation (for example, because of tariff revenue).  But a substantial number of Americans continue to support the policy nevertheless.  Supporters often argue (correctly) that the trade war hurts China more than the US and (probably incorrectly) that this will cause China to back down and give Trump things he wants.

Pressure from voters is unlikely to cause Trump to change his stance.  But escalation of the trade war has a negative effect on the US stock market, and that could cause him to moderate his approach.

Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

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