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End of year could provide better tell of trade war casualties

By Zhao Huanxin in Washington | China Daily USA | Updated: 2018-07-10 15:51

It is unwise to predict if the burgeoning trade war between the world's top two economies will be a short or protracted fight, given the unpredictability of US President Donald Trump. Where things stand at the end of the year may be a better barometer.

That is because after the US midterm elections in November, the economic impact of Trump's approach could become clearer, which could prompt a rethink, analysts have said.

Following through on his protectionist campaign rhetoric, the Republican president imposed punitive duties on steel and aluminum imports on the US' major trade partners earlier this year and last Friday ignited the largest trade war in economic history with 25 percent tariffs on more than 800 Chinese products worth $34 billion.

It is unlikely Trump will back down, particularly ahead of the midterm elections, when the Republicans will be fighting to hold onto a majority in the House and Senate, according to Raoul Leering, head of international trade analysis at ING bank.

"The world has to be prepared for an escalation of the trade conflict in the months to come," Leering said in an analysis titled "Trade war: Trump will flex muscle until US elections".

"By the end of the year, the effect of the trade war on the US economy will become more visible, which might spark a rethink of his trade policy," Leering wrote.

Leering warned that if Trump steps up his protectionist measures from Friday onward, the US economy will join the rest of the world in suffering negative GDP effects.

In a release last week, the Bank of England, the central bank of the United Kingdom, forecast that further escalation in the trade war, or a 10 percentage-point rise in tariffs between the US and all of its trading partners, could chip 2.5 percent off US output and 1 percent off global economic output.

David Dollar, senior fellow at the Brookings Institution's John L. Thornton China Center, also said things are more likely to change only after the midterm elections.

"Protectionism will be bad for the US economy, but it will take some time for this effect to become evident," Dollar told China Daily.

"Probably Trump will stick with the protectionism through the November elections. After that there is more chance for the two sides to negotiate a truce," he said.

Dollar, who was the US Treasury's economic and financial emissary to China between 2009 and 2013, cautioned that the US could lose substantially if Trump stretches the trade conflict.

"It (China) is gradually opening up more sectors of its economy, such as automobiles and financial services. If the US persists in the trade war, then American firms are likely to be shut out as China opens up," he said in an analysis on July 6.

"Do not be surprised if in 2019 the US takes the offer that has been on the table, dressing it up a bit in order to declare victory," Dollar said, referring to China's earlier offer to buy more agricultural products, energy and high-tech products. The offer was invalidated because of the US move to implement tariffs.

Trump's job approval rating stood at 41 percent in the week that ended on July 8, down from his highest 45 percent registered in the week ended on June 17, according to Gallup.

His support among his own party remains strong. But as the tariffs and counter-tariffs ripple across Trump Country, supporters may eventually get tired of all this "winning", according to columnist Catherine Rampell.

"It is no coincidence that so many Trump-voting areas will suffer," Rampell wrote in an opinion piece on The Washington Post on June 25.

That is because placing tariffs on intermediate goods such as steel and aluminum will hurt the downstream manufacturers that purchase those materials and that employ more Trump Country workers than the US steel and aluminum industries do, according to Rampell.

Another reason is that the US' furious trading partners are "deliberately" targeting industries located in politically sensitive areas, she said.

Already, some US companies are pulling back investments in equipment and jobs "as a result of uncertainty over trade policy", according to the minutes of the Federal Reserve Board's most recent meeting, on June 12 and 13, which were released on July 5.

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