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Economics

Les conséquences économiques de la guerre commerciale de Trump

Jul 12, 2018 Barry Eichengreen

BERKELEY – La guerre commerciale du Président des États-Unis Donald Trump, faite d'abord de pure façade et de vantardise, vient de devenir vraie.

Les droits de douane sur l'aluminium et l'acier (que l'administration Trump a imposés début juin), ont été importants principalement pour leur valeur symbolique, pas pour leur véritable impact économique. Tandis que les droits de douane signifiaient que les États-Unis ne jouaient plus selon les règles du régime des échanges mondiaux, ils ont ciblé seulement 45 milliards de dollars d'importations, soit moins de 0,25 % du PIB dans une économie américaine de 18,5 mille milliards de dollars.

Toutefois le 6 juillet, un droit de douane supplémentaire de 25 % sur 34 milliards de dollars d'exportations chinoises est entré en vigueur et la Chine a exercé des représailles contre un volume équivalent d'exportations américaines. Trump, fâché, a ordonné au Représentant des États-Unis pour le commerce de faire une liste de marchandises chinoises supplémentaires, d'une valeur de plus de 400 milliards de dollars, qui pourraient être taxées. La Chine a à nouveau promis d'exercer des représailles. Trump a également menacé d'imposer des droits de douane sur une valeur de 350 milliards de dollars de véhicules à moteur et de pièces d'importation. S'il passe à l'acte, l'Union européenne et d'autres pourraient exercer des représailles contre une quantité égale d'exportations américaines.

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0 Comments on this paragraph, 15 Comments on this article

Michael Clair Jul 17, 2018

Are European-made cars taxed at the same rate in Europe as American imports? If yes, then American car makers are competing on an even playing-field. So why should it matter if American-made cars are taxed more in Europe than they are in the US? If Europeans are prepared to pay more tax in return for more public services, then that is their decision. The US should not be "dumping" its economic ideology onto other countries.
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Deborah Moore Jul 16, 2018

We own a dairy in rural CT. Yes, there are rural areas in CT where we also grow Hedge Fund Manager's castles every 100 acres, but those 100 acres come with a mandate from the state that they remain in agricultural use. The family still owns the land of our old working dairy farm and lease it out to a dairy farmer who hays those hedge fund properties to supplement their income. I use the term "lease" loosely as the fee is minimal, and yet the farmer is not sure they can make a living anymore. Dairy prices have fallen precipitously from these trade wars. There are farmers all over the country suffering terrible financial losses, some even committing suicide over it. These folks are his base, and they are super hard working, stubbornly so!, folks who will not openly back down. I guess that they will not vote at all, and we will see where that takes us.

Full disclosure, I cannot stand the President, have felt that way about him since he started to build hideous towers in NYC. He is a predatory male, and I am a female. And am NOT in the Hedge Fund business.
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Arun Motianey Jul 15, 2018

The article--but, really, more so a couple of the comments below--reminds me of the general air of complacency that surrounded the commentariat (not to mention the bemused individual who then sat at the helm of the US central bank) about the effect of falling home prices in the US beginning late 2006. Housing activity is only a minuscule percentage of US GDP, the wealth effect of a 10% fall in home prices will only be an infinitesimally small percentage of household consumption and a vanishingly small piece of gross domestic demand, the economy is "humming along" and will do just fine, etc, etc, etc. Yet we got a wrecking ball of a crisis a year later.

Prof. Eichengreen does tip his head (momentarily) in that direction when he cautions us against depending too much on "standard economic models" because they fail to capture "uncertainty", using that residual and cop-out term for absolving oneself in advance from getting things wrong. I'd prefer to say we still don't understand the Rube Goldberg mechanism that is our financialised economy and so it would be a mistake to underestimate the cascading effects of these tariffs on aggregate production and demand as well as the fragility of the US economy that has frequently shown itself to be built as much as on myth and hot air as on actual strength.
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Thaomas H Jul 14, 2018

The article misses the point that US exports are harmed by US import restrictions even if there is no retaliation by anyone. Import restrictions raise the price of import competing goods relative to non-tradeables but through the exchange rate effect they reduce the earnings of export goods. And red states have about 50% greater exports that will be thus harmed than blue states.
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John Brian Shannon Jul 14, 2018

Hi Barry,

There's no mystery as to why there is little, if any, impact to markets as a result of Trump's tariffs.

If you had lived in the United States when Smoot-Hawley was passed in 1930, you wouldn't have needed to consult a consumer confidence chart to gauge the level of confidence that citizens felt in the economy... because there wasn't any confidence. In fact, it would have been a negative number had such metrics existed then. Yes, that bad.

In contrast to today where consumer confidence is high and tariffs are applied (and as you point out, they only affect, at most, .25% of US GDP) there will be no crash or slowdown in the economy as a result of these (minor, in the grand scheme of things) tariffs.

Of course, recessions appear approximately every 25 years, or so.

I hope that Trump-haters and other liberal elites don't try to attach the blame for the next recession on Trump and his .25% of US GDP tariffs... which recession is likely to hit some 20-years from now. But somehow, I think they're already working on that.

Not that I'm a great Trump fan, or Trump enemy for that matter.

But in the absence of a true 0% global tariff environment (that Trump *says* he wants) the United States can't always be getting the short end of the stick.

It was a very fine thing in the immediate postwar era as Europe and Japan struggled to balance their badly damaged economies for America to offer overly generous trading arrangements. But that time is long past.

As always, very best regards, JBS
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Walter Gingery Jul 13, 2018

It's not trade, it's capital flows.

Because tariffs only affect the trade balance to the extent that they alter the relationship between domestic savings and domestic investment, they work in some cases but don’t work in others. In the United States, it turns out, tariffs are unlikely to have an effect on the trade deficit because the relationship between domestic savings and domestic investment is determined not by domestic savings preferences but rather by foreign capital inflows. These foreign capital inflows are themselves determined by the need for foreigners to park their excess savings in a safe haven.

Since the 1970s, when excess global savings first became a problem, roughly 40–50 percent of the world’s excess savings have been parked in the United States. As a result, the United States has always run a capital account surplus that it cannot control and a corresponding current account deficit. This means that U.S. investment must always exceed U.S. savings by the amount at any point in time of net capital inflows.

One important, and perhaps surprising, implication is that the United States cannot cannot run a trade surplus. In fact, as long as its capital markets remain wholly open, it cannot even take steps to reduce its trade deficit except by making it harder, or less attractive, for investors to bring money into the United States. Because the U.S. trade deficit is set wholly by the net amount of excess foreign savings it has to absorb, it is not able to alter its overall savings rate.
- Tom CONLEY Jul 16, 2018
  
  This is exactly right. Great summary.
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- Walter Gingery Jul 13, 2018
  
  The remedy would be to tax Chinese currency manipulation rather than Chinese exports. In order to undervalue the renminbi against the dollar, China drives the dollar's value up by buying dollar-denominated financial assets, principally U.S. Treasury bills and bonds.
  
  To discourage China from doing so, the U.S. government should tax the income on Chinese holdings of U.S. financial assets. For example, the U.S. Treasury would withhold tax on interest paid on Treasury bonds held by China. For every $10 billion of Treasury bond interest paid to the People's Bank of China (the central bank), the U.S. Treasury could withhold 30 percent, or $3 billion, in tax.
  
  By taxing the precise actions that cause distorted exchange rates, the United States would increase the incentive for China and other currency manipulators to allow the values of their currencies to reflect market fundamentals. The tax rate should start at the normal statutory rate of 30 percent and could be increased at the discretion of the U.S. Treasury secretary until a government engaged in manipulation ceased the practice.
  
  In the meantime, the U.S. government would enjoy a few billion dollars per year of extra revenue to reduce its budget deficit, and these revenues would grow to tens of billions per year as interest rates return to more normal levels over time, especially if Washington raised the withholding tax rate.
  
  An important benefit of this approach is that it would explode the myth, commonly held in China, that the United States wants or needs China to buy U.S. Treasury bonds.
  
  If other currency manipulators -- such as Singapore and Taiwan -- do not absorb the implied lesson, their bilateral tax treaties with the United States could also be canceled and the amendment applied to them as well.
  
  The first step to instituting the tax would be for the United States to give notice, consistent with the treaty itself and prior to July 2011, that the U.S.-China tax treaty will be canceled as of January 2012. The second step would be for the U.S. Congress to amend several sections of the U.S. Internal Revenue Code that ensure tax-free treatment of income derived from financial assets held by the Chinese government and other official Chinese entities.
  
  This amendment would allow the United States to impose a withholding tax at rates determined by the Treasury Department, so long as China's currency manipulation continued.
  - Philippe Zhang Jul 26, 2018
    
    You have proposed a quite good solution, but the US government will not use it, simply because it will push the interest higher and that should make the officers' life hard. They want to "talk" only, and occasionally "punish" someone but never go to the root cause of the deficit.
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  - John Brian Shannon Jul 14, 2018
    
    Those are two fine comments, Walter.
    
    I agree with you on the need for the witholding tax, but I suggest that it be applied to all foreign T-Bill purchasers, in the interest of fairness, but also to simply avoid the negative ramifications of singling out one country for tariffs *and* what they would see as a punitive investment tax.
    
    China is angry enough, as it is.
    
    Cheers! JBS
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  - Walter Gingery Jul 13, 2018
    
    sorry; should be 'give notice prior to July 2019 that the treaty will be canceled as of January 2020.'
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mifi https Jul 13, 2018

" In early July, the European Commission was reportedly contemplating a tariff-cutting deal to address Trump’s complaint that the EU taxes American cars at four times the rate the US taxes European sedans."

This was widely misreported. The Commission proposed to bring all vehicle tariffs down. That would include the 25% tariff on imports of light trucks into the US, which is far higher than the EU's 10% tariff. Since light trucks (pickups, SUVs, minivans etc) represent 65% of the US's vehicle market, the effective protection of tariffs on the US side (about 17%) is far higher than on the EU side. That's why the administration refused to enter those talks.
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Paul Hanly Jul 13, 2018

Also important is who are the winners and losers within the US.
If the retaliatory tariffs are targeted at the exports of the "battleground" states that Trump courted and the Democratic machine elite virtually ignored and the income raised from imposing tariffs on imports to the US do not somehow largely offset the losses of those states (eg through special grants for development and infrastructure and farm/fuel subsidies) either the voters will latch more firmly on to Trump's ideology as being victims (quite likely) or they will see that Trump's policies are hurting them and they will turn away from him. Again, wait and see.
The tariff revenues could effectively be a tax on the upper and middle classes who buy imported goods that is then used to help employment and income in the battleground states. Again, it's wait and see.
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jonathan Story Jul 12, 2018

True. But the key issue in the US, as in the UK, is that "white trash", "Clinton's "deplorables", are voters, and have sent some pretty powerful messages. Some creative thinking is called for. Little sign of it in the UK. What about the US?
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Marc Laventurier Jul 12, 2018

"...shifting resources away from dynamic high-tech sectors in favor of old-line manufacturing will depress productivity growth." Not to worry - nobody's going to dismantle data centers for their scrap iron content.
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Les conséquences économiques de la guerre commerciale de Trump

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