Donald Trump has been dissatisfied with the trade deals, and he has started several trade wars. Thanks to the powerful US economy, he might be able to carry on longer than the other countries.
The decisions to engage in trade wars with his enemies as well as his friends are criticized by many, and they claimed that he would have to give up on the fight before tariffs and other US sanctions cause much damage, especially considering that we are entering mid-term elections in the fall. However, the US economy is on president’s side whether we like him or not. The US economy will grow at a 3.7% annual clip in the second quarter. Interestingly enough we haven’t seen an increase of over 3% since 2005, and this would be the first time that this happened.
Some of the things which have propelled the economy forward are tax cuts, higher government spending and a low unemployment rate caused by the increase in business investments over the last few years. Gus Faucher, chief economist at PNC Financial Services in Pittsburgh said: “The economy is doing well. You don’t want to see it happen, but there are a lot of worse times [a trade fight] could happen.”
Compared to the US, the Canadian economy is growing at its weakest rate in the past two years, while the European has also slowed down drastically. On the other side of the world, China is enduring a bear market in stocks.
One of the reasons why the United States has a healthy economy is that Americans are buying and selling from the other Americans. The US is exporting 12% of its goods, while that percentage is almost 20% for China and about 33% for Canada and 50% for Germany, one of the leading EU countries.
“Nobody wins in a trade war, but the U.S. is much, much less dependent on exports as a percentage of our economy,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “The strategy is very clear. They are willing to go a long way with the tariffs because they feel our relative pain will be lower than it will be for other countries.”
Trump has believed that the other countries have taken advantage of the United States and now he wants to put an end to it. And he was right – the economists claim that the US economy is more open and has fewer trade barriers, generally speaking. Chief Economist Richard Moody of Alabama-based Regions Financial said: “It’s not that there are not legitimate grievances. The question is the best way to go about resolving them.”
However, the approach Trump has taken is unconventional for Washington that has always relied on a dialogue. So far, POTUS has announced billions worth of tariffs on Chinese-made products and foreign steel, and he also wants to block the transfer of sensitive US technologies. Moreover, he will most likely impose automobile tariffs on Canada and the EU. And while these are the resources America is imposing the additional taxes on, the other countries targeted goods such as soybeans, whiskey, and Harley-Davidson bikes.
Trump tweeted: “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!”
In the short run, the US will suffer little damage. In other words, whether the US has the growth of 3.0 or 2.8 percent, it doesn’t really matter. However, some businesses will be affected by trade wars and companies as well as individuals could pay more for the goods which are affected by the US tariffs. Trump should win these trade wars and work out new deals sooner rather than later because as the time passes, the damage that could be done to the US economy increases. The good thing about everything that is going on is that the other countries are under a lot more pressure and they may be the ones to give up first.
Source: marketwatch.com
